"Income Tax (Deduction for the Sponsorship of Scholarship to Malaysian Student Pursuing Studies at Technical and Vocational Certificate, Diploma, Bachelor's Degree, Master's Degree or Doctor of Philosophy Levels) Rules 2022" (P.U.(A) 49/2022) was gazetted by the Malaysian government on March 7, 2022, to implement an extension and expansion of the Double Deduction for companies that sponsor scholarships.
The amount eligible for the double deduction is expanded to include qualifying expenditures for scholarships relating to all fields of study:
at the technical or vocational certificate level; or
at the diploma, bachelor’s degree, master’s degree, or
doctor of philosophy level.
The regulations are designed to foster the growth of a more highly trained workforce in Malaysia and are effective from the year of assessment (YA) 2022.
The Inland Revenue Board of Malaysia has issued their responses dated 29 December 2022 to CTIM members’ issues dated 21 September 2022 on the following:-
2% tax deducted under Section 107D of the Income Tax Act 1967
Amended Guidelines dated 17 August 2022 on Deduction for Secretarial & Tax Filing Fees from YA 2022
Tax rebate under Section 6D of the Income Tax Act 1967
Gazette Order - Income Tax (Deduction for the Sponsorship of Scholarship to Malaysian Students Pursuing Studies at Technical and Vocational Certificate, Diploma, Bachelor’s Degree, Master’s Degree or Doctor of Philosophy Levels) Rules 2022 [P.U. (A) 49/2022] – w.e.f. YA 2022
This article will focus on item No 4 - Income Tax (Deduction for the Sponsorship of Scholarship to Malaysian Students Pursuing Studies at Technical and Vocational Certificate, Diploma, Bachelor’s Degree, Master’s Degree or Doctor of Philosophy Levels) Rules 2022; and items 1, 2 &３ have already been discussed in our previous posts.
The above P.U. Order provides that for a company to qualify for the above double deduction claim, the company must satisfy the following conditions:
The company must be incorporated under the Companies Act 2016 and resident in Malaysia;
The company sponsors scholarships to a student pursuing a full-time course of study at:
technical and vocational certificate levels in an institution; or
diploma, bachelor’s degree, master’s degree or Doctor of Philosophy levels in a higher educational institution;
The scholarship agreement with the student is executed during 1 January 2022 and 31 December 2025.
The student shall be a Malaysian citizen and resident who has no means on his own and whose parents or guardians have a total monthly income not exceeding RM10,000.
Based on rule 4(1) of the above P.U. Order, “……, a deduction shall be allowed for an amount of expenses incurred and paid by that company in that basis period for sponsoring a scholarship to a student in accordance with the period of the relevant sponsorship agreement.”.
CTIM Comments:
We would like to seek clarification on whether a higher education institution offering scholarship sponsorship to its students is eligible for the above incentive.
A higher education institution that offers scholarship sponsorship to its students will not make any cash payment on the scholarship awarded to the sponsored students or another institution.
Generally, the scholarship amount sponsored will be recognised as a cost in the higher education institution’s account. Please see the example below.
Example: Student ABC obtained straight As for his SPM. He has been admitted to College XYZ to do a diploma course. The course fee is RM40,000. College XYZ agreed to give a scholarship of 50% of the course fee based on Student ABC’s excellent SPM results. The relevant double entries would be as follows:
To recognise the course fee:
Dr Trade Receivable (Balance Sheet) RM40,000
Cr Revenue (Income Statement) RM40,000
To recognise the Scholarship
Dr Scholarship Expenses (Income Statement) RM20,000
Cr Trade Receivable (Balance Sheet) RM20,000
Based on the principles established by the courts, an expense incurred would include the sum taxpayers were obliged to pay and would not just be confined to an actual disbursement.
In view of the above, we would like to seek clarification on whether a higher education institution that provides scholarship sponsorship to its own students will satisfy the incurred and paid condition as stated in rule 4(1) of the P.U. (A) 49/2022 despite no actual cash outflow on the scholarship sponsored.
LHDNM Feedback: Subsection 4(1) of P.U.(A) 49/2022 refers to an amount of expenditure incurred and paid by the company during the basis period for sponsoring a scholarship to a student.
Based on the example presented by CTIM, subsection 4(1) of P.U.(A) 49/2022 is not met.
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