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Taxation Aspects for Social Benefit Initiatives
Scope of presentation
Social Initiatives – contribution
Types of Initiatives
Related issues
Subsection 44(6)
Taxation Aspects
Related Provisions
Issues on Waqf & Current Status
Q&A
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Taxation Aspects on Social Initiative / “incentive”
Social Initiatives - contributions
Donation
Waqaf
Zakat
3
Taxation Aspects on Social Initiative / “incentive”
Taxation Aspects
Donor
Tax deduction?
Recipient
Institutions
Subject to tax?
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Subsection 44(6) ACP 1967
Subject to subsection (12), there shall be deducted pursuant to this
subsection from the aggregate income of a person for the relevant
year reduced by any deduction falling to be made for that year in
accordance with subsection (1) an amount equal to any gift of money
made by him in the basis year for that year to the Government, a
State Government, a local authority or an institution or organisation
approved for the purposes of this section by the Director General on
the application of the institution or organisation concerned:
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Subsection 44(6) ACP 1967
………..there shall be deducted………………from the aggregate income
of a person ………….an amount equal to any gift of money ……… to the
Government, a State Government, a local authority or an institution
or organisation approved ……………..by the Director General …………:
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Important terms
Subsection 44(6)
Government
Federal
State
Local Authority
DGIR Approved Institution
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Taxation Aspects on Social Initiative
Donor
Taxation Aspects
Donor
Donor qualify for Tax deduction on
donation given
To Government, State
Government & Local Council
100% of Donation
Institution approved by DGIR
On AI
7% for individual
10% fo Company8
Taxation Aspects on Social Initiative
Recipient
Taxation Aspects
Recipient
Tax Exemption on income
Government/State Govt
Para 5 Sch 6
Local Council
Para 6 Sch 6
DGIR Approved Inst
Para 13(1)(a) Sch 6
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Other Related Provision – ITA 1967
General
Related Provison –ITA 1967
Donation ‘incentive’
Subsection 34(6)(h), 34(6)(ha)
Subsection 44(6), 44(11B), 44(11C)
etc
Waqf – no special provision under ITA
Zakat
Individual – Rebate Sec 6A(3)
Company- Business- 44(11A)
10
Related Provision – ITA 1967
Tax Incentive
Name – very important
Different Tax Treatment
Govern by different Section
Donation
Subsection 34(6)(h), 34(6)(ha)
Subsection 44(6), 44(11B),
44(11C)
etc
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Related Provision – ITA 1967
Zakat
Name – very important
Govern by different Section
Zakat
Individual – Rebate Sec 6A(3)
net
Company- Business- 44(11A)
2.5% of AI
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Related Provision – ITA 1967
Waqf
Name – important
Govern by different Section
Waqf
No provision in ITA
13
Related Provision – ITA 1967
Donation
Name – important
Govern by different Section
Application & Approval
Subsection 34(6)(h), 34(6)(ha)
MOF
Expenditure incurred
Subsection 44(6)
IRB
Appeal – MOF
Cash only
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Related Provision – ITA 1967
Donation
Name – important
Application & Approval
Subsection 44(11B)
Sports
MOF
Cash/inkind
Subsection 44(11C)
National & Strategic important
MOF
Cash/cost contribution in kind
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Related Provision – ITA 1967
Waqf
Waqf
No special prov under ITA
IRB stand on waqf ?
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CONDITIONS FOR CREATING CASH-WAQF
There are three legal conditions to be
fulfilled when creating cash-waqf.
• Irrevocability: This means that once the founder created the cash-waqf he cannot revoke it back, however, he/she can benefit from its investment/revenue.
• Perpetually: Once the cash-waqf is created it must be perpetual. This will ensure regular and continual support from the cash-waqf to financing needy areas in the Muslim society.
• Inalienability this means that once cash is created as waqf no one can ever become the owner to alienate it, i.e. it becomes a ‘frozen asset’. It cannot be the subject to be given as gift, inheritance, or any alienation whatsoever.
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CASH-WAQF MODELS
1. Waqf Shares Model
2. Waqf Takaful Model
3. Direct Model
4. Mobile Model
5. Corporate Cash Waqf Model
6. Compulsory Model
7. Deposit Product Model
8. Co-Operative Model
9. Waqf Mutual Fund Model
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Deposit
DIRECT CASH WAQF MODEL
Beneficiaries
Beneficiaries
Beneficiaries
Waqif
founder
Donator
ContributionsRevenue
Bank
(invest)
Revenue
Generated
Religious
Institution/
NGO
In 1998, Johor Corporation had endowed cash to Kumpulan Waqf An-Nur Berhad
(KWANB), by simply depositing money to a specific bank account. – SS 44(11C)
The introduction of cash waqf fund in IIUM in the early 1990s was identical to Al-
Azhar University Waqf. However, and due to the law of administration of waqf of
1952 which gave the right for the State Religious Councils to administer any waqf,
IIUM was force to change the wording of cash waqf to Endowment Fund in order to
manage its own cash waqf which is specifically meant to help students
1. Malaysia
2. Singapore
3. Bahrain
4. UAE
5. Pakistan
6. India
7. US
8. South Africa
9. IDB
10. OPEC
4/20/2017 19
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
No special prov under ITA
Tax treatment on Waqf
No approval given under Ss 44(6) on waqf
Waqf An Nur – Ss 44(11C)
Ss 44(6) ?????
20
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
No special prov under ITA
Tax treatment on Waqf
Waqf not treated as donation under Ss44(6)
Failed to comply Ss 44(6) conditions on the Recipient
Condition to be fulfilled – elements of donation under Ss 44(6)
No condition/string/restriction
Waqaf – principal must remained
Donation – free to use
No double benefit
Donation – tax deduction
Waqf – maintain, restricted
21
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
Tax treatment on Waqf
Condition for donation Ss 44(6) - cont
Against 50% spending requirement
Waqf – only profit can be utilised
Donation - free
No two way – temporary ownership
Waqf – some waqf can go back to
donor
Donation - no
22
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
Tax treatment on Waqf
Condition for donation Ss 44(6) - cont
Not for investment – purchase a
building and rental objective
Waqf – to acquire building used to
generate rental income
Donation – for approved objectives
To acquire building required
DGIR approval
23
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
Tax treatment on Waqf is not a donation under Ss
44(6)
Condition for donation Ss 44(6) -cont
Cash only no inkind (tax receipt)
Waqf – cash and inkind
For specific approved objectives only Ss 44(7)
Waqf – wider scope
Purchase & disposal of assets require IRB
approval
Waqf – depend on donor
24
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
Tax treatment on Waqf- is not a donation under Ss
44(6)
Condition for donation Ss 44(6) -cont
Dissolve isues
Institution Ss 44(6)
Balance donate to other Approved Ss
44(6) institutions
Waqf – no transfer
25
Related Provision – ITA 1967
Waqf – tax’s perpective
Waqf
Tax treatment on Waqf -is not a donation under Ss
44(6)
Condition for donation Ss 44(6) -cont
Waqf for building purposes eg mosque, school,
not inline with Ss 44(6)
Require special application and
documentations
Under different heading
Building Fund for worship
Building Fund for School
TPRI (Fund for Worship Operations) 26
Related Provision – ITA 1967
Waqf – tax’s perpective – Action & Solution
Waqf
Tax treatment on Waqf - is not a donation under Ss
44(6)
Meeting with MOE, Public , Universities and IRB
on Sept 2016
Issues under MOF studies
Solution
Short term
Long Term
Introducing new special provision
Same as zakat
27
The Impact Of Subsection 44(6)
Total Number Of Approved
Institutions
As December 2015
1825 registered and active
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The Significants Of Subsection 44(6)
Totao amount claimed
Types Year 2012 Year 2013 Year 2014
Individual RM 50.93 mil RM 269.05 mil RM 378.62 mil
Companies RM 825.623 mil RM 1,070.22 mil RM 901.36 mil
Total RM 876.55 mil RM 1,339.27 mil RM 1,279.98 mil
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Referances
31
Referances
32
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