In Relation To The Approval Of The Chief Director Of Revenue In The State (KPHDN) Under Subsection 44(6) Of The Tax Act 1967 Income To Institutions/Organizations/Funds
- This note aims to provide understanding regarding institutions/organizations/funds that get tax exemption due to KPHDN's approval under subsection 44(6) of the Income Tax Act 1967. Hopefully this note can help provide understanding to institutions/organizations/funds, taxpayers, tax agents, IRBM officers and the public regarding KPHDN's approval of these institutions/organizations/funds.
- Subsection 44(6) is a tax exemption incentive given to institutions/ organisations/funds for meeting the approval conditions in the provisions of the law and regulations set by KPHDN. This incentive is given based on application and not automatically. Guidance related to application procedures, conditions, and approval criteria can be found in the guidelines. The guidelines that were issued on January 20, 2020, can be accessed from the official IRBM website, www.hasil.gov.my.
- To maintain the approval of an institution/organization/fund under subsection 44(6) of the ITA 1967, it is very important to ensure that the institution/organization/fund established is not primarily for profit. The definition and activities of eligible institutions/organizations/funds are those that meet the specific activities specified under subsection 44(7). The list of names of institutions/organizations/funds that have been approved can be checked through the official website of LHDNM.
- If the institution/organization/fund complies with the provisions of the law and regulations, then an application can be made to KPHDN. Approval will be granted by KPHDN based on a complete application that meets the specified conditions.
- If the institution/organization/fund does not get KPHDN approval, then the institution/organization/fund will be subject to income tax. Institutions/organizations/funds are responsible for calculating, paying, and submitting their respective Income Tax Return Forms (BNCP). To that end, institutions/organizations/funds can refer to the BNCP filling guide, which can be accessed through the IRBM's official website at www.hasil.gov.my. The imposition of tax on the income of institutions/organizations/funds is applicable if approval has not been obtained from KHPDN.
- Applications of institutions/organizations/funds whose primarily is not for profit and carry out welfare/charitable activities, may not necessarily be approved by KPHDN under subsection 44(6) of the ITA 1967 for the purpose of tax exemption. This
is because institutions/organizations/funds need to meet and fulfil other requirements for the purpose of KPHDN approval. Approval conditions and criteria can also be accessed through the KPHDN approval application guidelines dated January 20, 2020, which can be obtained from the IRBM official website at www.hasil.gov.my.
- Institutions/organizations/funds that have been approved by KPHDN under this provision get two benefits: income tax exemption on all income received by them (under Paragraph 13(1) Schedule 6), and donors are eligible for tax deductions in tax computation subject to 10% [under subsection 44(6)] from aggregate income (except donations/contributions to the government, state government, local government, and the like).
- A KPHDN approval letter will be issued once institutions/organizations/funds meet the conditions and approval criteria. The approval letter will contain the approval period in effect, conditions and requirements, the receipt format that must be followed, and the responsibility of the institution/organization/fund that has been approved under subsection 44(6).
DISCLAIMER: This note is intended solely to provide a general explanation of the issues raised. It cannot be used for technical reference purposes regarding factual and legal matters. Treatment of such situations should be in accordance with the provisions of the law and existing guidelines. This note only provides general guidance and explanation for the purpose of understanding as well as awareness.