Malaysia Inland Revenue Board (IRB) – All religious institutions qualify for tax exemptions

All religious institutions or organisations qualify for tax exemptions, provided that their income are from donations and intended for religious activities.

The IRB said that a recent amendment to the Income Tax Act 1967 (“the Act”) in Budget 2017 shed light on how the exemptions can be applied.

"The amendment to paragraph 13(1)(b) Schedule 6 Income Tax Act 1967 (Act 53) in Budget 2017 seeks to provide clarity of the law on the application of exemption to religious institution or organisation.

"Prior to this amendment, there has been some confusion among taxpayers as to whether or not religious institutions or organisations automatically qualify for the exemption under the Act.

"Or if they were required to obtain approval from the IRB director general, under section 44(6) Act 53," they said in a statement.

IRB explained that with the amendment, it is explicitly provided that religious institutions and organisations qualified for a tax exemption. "Religious institutions or organisations automatically qualify for the exemption on income from donations contributed by religious worshippers, solely for the purpose of religious worship activities or the advancement of religion. The exemption applies to all religions," said IRB.

It was also pointed out that income from business or rental is taxable under Act 53 and was outside the scope of the exemption.

"The taxable income is income after deducting all expenses incurred in the production of said business or rental income. This treatment is consistent with the principles under Act 53," explained IRB.

Recently, parliament had passed an amendment to paragraph 13(1)(b) to allow 'contributions' received by non-profit religious organisations for "charitable purposes" to qualify for tax exemptions. This led to churches expressing concern that the amendments would only affect non-Muslim bodies as Mosques were governed by state Islamic laws. IRB however had clarified that all religious organisations were under the revenue board and was therefore subject to the Act.



Date: 27 December 2016