Second Finance Minister Johari Abdul Ghani said the government needed to address the situation to ensure that all public donations are used solely for religious purposes but be subjected to tax if business activities were involved, the Borneo Post reported.
“Based on Inland Revenue Board (IRB) experience, many of these religious bodies are actively involved in investment and some of them frequently buy and sell properties by using the religious bodies’ funds.
“They earn huge profits and some of them are paying huge allowances to the committees. We just need to have a system to safeguard all the public donations to ensure they are used solely for religious purposes and not for profit making,” Johari was quoted as saying yesterday.
He reassured the public that their donation is not going to be affected, in that it will remain tax free.
“However, the use of such funds by the recipient religious organisation will be monitored to ensure it is used for religious purposes only and not for investment. If its the latter, then those incomes from investment need to be taxed,” Johari said.
Giving the example of religious bodies buying properties as an investment, he said that there is no tax on the principal investment but on the profit in terms of returns from the investment.
“It’s very simple. If you collect public money, then that money must be used for religious purpose. If you used that money for investment, then such investment income will be taxed. Not the principal investment but the profit of the investment,” Johari said, according to the Sarawak-based daily.
Prior to the amendments, the finance ministry did not stipulate how religious bodies should use their donations.
Johari also believes the amendment will help all parties to understand better what religious bodies are doing with the donations they receive.
He added that besides incomes from businesses or rental, profits from sale and purchase of properties are also subject to tax.
Despite the clarification from the minister as well as the Inland Revenue Board (IRB), a tax consultant has warned that the wording of the amendment is subject to interpretation and could impact religious bodies regardless of the use of donations.
Speaking to Borneo Post, the tax consultant said the IRB must confirm and issue a Public Ruling on the amendment so as to ensure that religious bodies are not penalised arbitrarily later.
In response, Johari said that religious bodies can write to the IRB and will receive the necessary clarification, Borneo Post reported.
On Tuesday, the IRB issued a statement to confirm that from next year, religious bodies need to pay tax for their incomes derived from businesses or rental.