(GS)'Tis the season not to be charitable
Published: Jan 27, 2015 6:20 AM | Updated: Jan 27, 2015 9:11 AM
The focus regarding the implementation of the Goods and Services Tax (GST) this April has been on its economic impact.
The focus regarding the implementation of the Goods and Services Tax (GST) this April has been on its economic impact.
But few have noticed its social consequences, especially the impact on charities and the non-profit sector.
DAP lawmakers Zairil Khir Johari and Steven Sim pointed out that the planned implementation of the universal consumption tax will create numerous obstacles and complexities for charities.
"According to the Royal Malaysian Customs' Goods and Services Tax: Guide on Societies and Similar Organisations booklet, almost all activities carried out by charities, non-profit organisations and NGOs - including those currently enjoying tax-exempt status - will be subject to GST.
"Charity is a social cause that is often undertaken by selfless volunteers who are doing work that the government should be doing but is not.
"Such activities should be supported and encouraged by the authorities," the two added in a joint statement.
They pointed out that under the GST regime, only cash donations 'without any benefits' to donors are not regarded as a taxable supply and hence not covered by the GST.
However, cash donations are subject to GST if there are benefits to the donors, with benefits defined as:
Donation in kind
The lawmakers also revealed that donations in kind were subject to further limitations.
For sponsorship in kind 'without benefits' to the donors, only goods that do not exceed RM500 in cumulative value over a year were considered a 'business gift' and therefore exempt from GST.
If, however, the sponsored goods total more than RM500 a year, it would be regarded as a 'supply' and would have to be accounted for GST.
For donations in kind that were reciprocated with 'benefits' to the donor, such as coffee mugs bearing the donor’s corporate logo, then GST must be accounted based on the open market value for providing advertising space, they said.
“It is often the case that charities and non-profit organisations engage in other activities to supplement their income for operational expenses. However, all such services such as the rental of halls, sale of products, dialysis or other medical treatments, training workshops, translation work, and sale of advertising space will be subject to GST, even if the proceeds are used for entirely charitable purposes,” they added.
“Many charities in Malaysia receive little or no aid from the government and are thus reliant on support from individuals and the corporate sector. With the GST, instead of providing funding, the government will in fact be taking a share of donations and proceeds meant for charity. This ironic reversal will reduce the real value of contributions.
“It is clear from the above that the GST will essentially make both the act of giving charity and the operation of charitable organisations more expensive. This in turn may discourage contributions, further aggravating the often cash-strapped situation of the non-profit sector in Malaysia,” said Zairil who is MP for Bukit Bendera and Sim who is MP for Bukit Mertajam.
Mitigatory measures
In recommending mitigatory measures for the situation, the lawmakers stressed that organisations currently enjoying tax-exempt status should, as a matter of principle, also be exempted from GST treatment.
“As government support is often lacking, most charities cannot afford to wait passively for donations. Instead, active fundraising is required, sometimes via 'business-like' activities, such as selling merchandise and providing services such as the rental of halls.
“Some non-profits actually sustain themselves through a cross-subsidy model where profits earned from business activities are used to cross-subsidise the disadvantaged. For example, a dialysis centre may charge commercial rates to patients who can afford it in order to cross-subsidise those who cannot.
“While it is important that the government ensures no profiteering occurs behind the facade of charity, genuine charities must be assisted and should not be burdened unnecessarily. In this respect, the government should consider creating certain categories of non-profit organisations or charities that are exempted from GST altogether,” outlined the duo
“If, however, the government is unable to exempt charities from GST for whatever reasons, then it should increase the taxable turnover threshold for GST-exempted charities and non-profits to at least RM2 million from the current RM500,000.
“This will help to relieve smaller charities from some of the negative consequences discussed above,” they said.
But few have noticed its social consequences, especially the impact on charities and the non-profit sector.
DAP lawmakers Zairil Khir Johari and Steven Sim pointed out that the planned implementation of the universal consumption tax will create numerous obstacles and complexities for charities.
"According to the Royal Malaysian Customs' Goods and Services Tax: Guide on Societies and Similar Organisations booklet, almost all activities carried out by charities, non-profit organisations and NGOs - including those currently enjoying tax-exempt status - will be subject to GST.
"Charity is a social cause that is often undertaken by selfless volunteers who are doing work that the government should be doing but is not.
"Such activities should be supported and encouraged by the authorities," the two added in a joint statement.
They pointed out that under the GST regime, only cash donations 'without any benefits' to donors are not regarded as a taxable supply and hence not covered by the GST.
However, cash donations are subject to GST if there are benefits to the donors, with benefits defined as:
-
Advertising or promoting the donor’s or sponsor’s name or its products in the programme booklet.
-
Naming the event after the donor or sponsor.
- Displaying the donor’s or sponsor’s name on shirts worn by a team.
Donation in kind
The lawmakers also revealed that donations in kind were subject to further limitations.
For sponsorship in kind 'without benefits' to the donors, only goods that do not exceed RM500 in cumulative value over a year were considered a 'business gift' and therefore exempt from GST.
If, however, the sponsored goods total more than RM500 a year, it would be regarded as a 'supply' and would have to be accounted for GST.
For donations in kind that were reciprocated with 'benefits' to the donor, such as coffee mugs bearing the donor’s corporate logo, then GST must be accounted based on the open market value for providing advertising space, they said.
“It is often the case that charities and non-profit organisations engage in other activities to supplement their income for operational expenses. However, all such services such as the rental of halls, sale of products, dialysis or other medical treatments, training workshops, translation work, and sale of advertising space will be subject to GST, even if the proceeds are used for entirely charitable purposes,” they added.
“Many charities in Malaysia receive little or no aid from the government and are thus reliant on support from individuals and the corporate sector. With the GST, instead of providing funding, the government will in fact be taking a share of donations and proceeds meant for charity. This ironic reversal will reduce the real value of contributions.
“It is clear from the above that the GST will essentially make both the act of giving charity and the operation of charitable organisations more expensive. This in turn may discourage contributions, further aggravating the often cash-strapped situation of the non-profit sector in Malaysia,” said Zairil who is MP for Bukit Bendera and Sim who is MP for Bukit Mertajam.
Mitigatory measures
In recommending mitigatory measures for the situation, the lawmakers stressed that organisations currently enjoying tax-exempt status should, as a matter of principle, also be exempted from GST treatment.
“As government support is often lacking, most charities cannot afford to wait passively for donations. Instead, active fundraising is required, sometimes via 'business-like' activities, such as selling merchandise and providing services such as the rental of halls.
“Some non-profits actually sustain themselves through a cross-subsidy model where profits earned from business activities are used to cross-subsidise the disadvantaged. For example, a dialysis centre may charge commercial rates to patients who can afford it in order to cross-subsidise those who cannot.
“While it is important that the government ensures no profiteering occurs behind the facade of charity, genuine charities must be assisted and should not be burdened unnecessarily. In this respect, the government should consider creating certain categories of non-profit organisations or charities that are exempted from GST altogether,” outlined the duo
“If, however, the government is unable to exempt charities from GST for whatever reasons, then it should increase the taxable turnover threshold for GST-exempted charities and non-profits to at least RM2 million from the current RM500,000.
“This will help to relieve smaller charities from some of the negative consequences discussed above,” they said.
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