Wong (left) explains to The Borneo Post on the new amendment of Paragraph 13 (1)(b) of Schedule 6 of the Income Tax Act 1967. With him is SUPP Youth Dudong deputy chief Benjamin Tian.
THE amendment to Paragraph 13 (1)(b) of Schedule 6 of the Income Tax Act 1967 has caused much concern among religious bodies and charities after The Borneo Post broke the story on Friday.
The amendment has been approved by the Dewan Rakyat and Dewan Negara, but some quarters still cannot figure out the implications due to ambiguity and the technical wordings used.
This prompted The Borneo Post to get chartered accountant Wong Ching Yong to explain the amendment in layman’s terms.
Below is an excerpt from that interview by reporter Conny Banji in Sibu yesterday.
Which parties will be affected by this amendment?
Wong: It will affect religious organisations, charities, charitable trusts and institutions.
Is there anything that the state government can do about it?
Wong: Income tax is a federal tax. This means the money will not go into the state’s coffer. Because this is a federal law, Sarawak cannot do anything about it.
Can you explain the difference before and after the amendment?
Wong: Before the amendment, the income of religious institution or organisation, other than dividend income, was all exempted from tax. The income that is exempted from tax included rental, bank interest, printing and publishing.
After the amendment, which will take effect on Jan 1, 2017, all these must be subjected to tax.
Can you elaborate on the tax structure?
Wong: The tax rates are on a progressive scale, ranging from zero to 26 per cent, and it will affect the financial and cash flow of religious bodies.
For example, if a shop earned profits and used the profits for charitable purposes, it would still be taxed because only the income in the nature of contribution received by the religious bodies formed for charitable purpose would be exempted under the new amendment.
There is no tax for every ringgit of the first RM5,000 of chargeable income. Two per cent tax will be charged for every ringgit of the next RM15,000 and maximum 26 per cent for every ringgit of the next RM100,000 (refer to photo courtesy of Wong Ching Yong).
How is the word ‘contribution’ defined?
Wong: The definition of the word ‘contribution’ is not found in Section 2 (Interpretation) of the Income Tax Act 1967 . All donations were not taxable income.
What if a religious organisation sells its properties?
Wong: The disposal of landed properties by any organisation are governed by Real Properties Gains Tax 1976 regardless of whether the proceeds were used for charity or other purposes.
Are there any other implications following the amendment of Schedule 6, paragraph 13 (b) (ii) of the Income Tax Act 1967?
Wong: One ambiguous implication is that if the contribution received by a religious institution or organisation is not used on charitable purposes but for religious or cultural or educational purposes, would this contribution be disallowed from being exempted from income tax?
Would that mean religious organisations have to separate their accounts into expenditure for charities from what they spend on religious worship and advancement of religion respectively?
Wong: If the amendment on Schedule 6, paragraph 13 (b)(ii) were to be implemented, that would seem to be the way to distinguish the purposes of contribution received, i.e., first you have to distinguish charity from religious purposes when charitable work is an integral part of religious practice.
Given the readiness of MPs from both sides of the political divide to accept the amendment, was it possible they were not fully aware of the implications of this change in the Act?
Wong: I cannot comment on their awareness or lack of it, but one interesting omission in the tabling of the amendment of the Act is an appendix that explains the purpose of the motion.
Perhaps if there was an explanation, the MPs could have a clearer understanding of the amendments and voted differently.
Is there anything the affected organisations can do?
Wong: I urge all religious bodies to come together to discuss ways to be presented to the chief minister with regard to the amendment.
Senior counsel George Lim and I would be happy to accompany such delegations to meet the relevant authority.
We would bring up the concerns of religious bodies, including the one about them having to pay significant tax for their rental income, fixed deposit interests, income of business nature like a book shop, printing of books for sale, and provision of accommodation for outsiders.