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Malaysia Has A Strange Income Tax Law Between Bumiputera & Non-Bumiputera : Muslims May Opt Out Of Paying Income Tax Even If They Have Taxable Income

In case you don’t know, Malaysia has a strange law re Income Tax. While every working adult (includes business persons) is assessed on their annual income to see if they have taxable income, the Muslims may opt out of paying income tax even if they have taxable income. YES!! U read that correctly. What they do is to pay the equivalent amount as “zakat” (Islamic tithes) to the Islamic Religious Department.

This money will only be used for Islamic affairs (help pay the salaries of religious teachers, expenses related to proselytism, building & maintenance of mosques, etc). Most Muslims opt to pay “zakat” instead of income tax as they think this contribution will earn them more merits in the hereafter.

As such, it’s no secret that the non-Bumis in Malaysia contribute ~ 90% of all personal income tax collected despite accounting for ~35% of the population. None other than Ex-PM Mahatir (amongst others) hv confirmed the figure of ~90%. Now, here’s the cruncher: The “zakat” funds are NOT to be used for the country’s Operating nor Development expenses.

To top it all, annually the Government allocates an increasing sizeable budget for Islamic Affairs!! Partly, this is to ensure that most of the graduates from Islamic schools can be employed. As the number of tax-paying non-Bumis (as a percentage of population) continues its decline (less kids awa migration), so will the amount of personal income tax to be collected.

Despite this glaring & frightening prospect, NO Malaysian politician will dare to propose that everyone with taxable income must pay their assessed tax to the Internal Revenue Board only. This, coupled with reduced FDIs n the possibility of local entrepreneurs cutting back on investing within Malaysia can only result in this country heading for a major economic disaster… soon!

This is why i said, with a dwindling non bumi population, collection of income tax and corporate tax will be insufficient for operating and development expenditure.

Now, here’s the cruncher: The “zakat” funds are NOT to be used for the country’s Operating nor Development expenses. To top it all, annually the Government allocates an increasing sizeable budget for Islamic Affairs!! Partly, this is to ensure that most of the graduates from Islamic schools can be employed.

As the number of tax-paying non-Bumis (as a percentage of population) continues its decline (less kids awa migration), so will the amount of personal income tax to be collected. Despite this glaring & frightening prospect, NO Malaysian politician will dare to propose that everyone with taxable income must pay their assessed tax to the Internal Revenue Board only.

This, coupled with reduced FDIs n the possibility of local entrepreneurs cutting back on investing within Malaysia can only result in this country heading for a major economic disaster… soon!

This is why i said, with a dwindling non bumi population, collection of income tax and corporate tax will be insufficient for operating and development expenditure. End of story.

Any accountant here to verify the following:

1/muslim tax payers can contra zakat with income tax NOT subjected to any ceiling.

2/whatever income amount they declare in front of zakat officer has nothing to do lhdn declaration.

If these assumption are confirmed.. this is another burning issue.

1 Comment

1 Comment

  1. Kenny Kong

    November 25, 2021 at 8:09 pm

    I am really curious as logically I understood the general calculation will be only 2.5% of your income pay to zakat as the formula, so do you mean Muslim can pay more than that or as many as they like?

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