The Inland Revenue Board of Malaysia (HASiL) has issued Practice Note No. 2/2023 dated 27 June 2023.
This Practice Note explains the following:
- Definitions of political parties and politicians;
- Tax treatment of political parties and politicians
The definitions of political parties and politicians are not explicitly stated in the Income Tax Act 1967 (ITA 1967). However, Section 2 of the Societies Act 1966 defines ‘political party’ as follows:
- an organisation which, for any purpose or by any means, whether that purpose or means is its primary purpose or otherwise, provides for the organisation to participate, through its candidates, in the elections to the House of Representatives or to the State Legislative Assembly, or the local authorities or provides for it to seek the appointment or election to the Senate of a person proposed or supported by it; or
- an organisation which, notwithstanding anything contained in its purposes or rules, carries on any activities or pursues any objectives which involve its participation, through its candidates, in the elections to the House of Representatives, or to the State Legislative Assembly, or the local authorities or which involve it seeking the appointment or election to the Senate of a person proposed or supported by it;
The general interpretation of politicians is an individual, whether male or female, who participates in elections or holds positions, including congress members, chancellors, governors, mayors, members of parliament/representatives, ministers, presidents, prime ministers, or senators at the local, state, or federal government levels through involvement in a political party or political activities.
It can also refer to any officer seeking to retain their position through election campaigns.
Tax Treatment for Political Parties
Political parties, as organisations, are subject to taxation under subsection 53A of the Income Tax Act 1967 (ITA 1967). However, under paragraph 2(1) of the Income Tax (Exemption) Order (No. 22) 2002 [P.U.(A) 208/2002], the Minister exempts a political association from paying income tax on all income starting from the Assessment Year 2001.
Nevertheless, political associations must comply with any requirements to submit any statements or accounts or provide any other information under the provisions of the ITA 1967.
Tax Treatment on Funds/Donations Received by Political Parties
Funds/donations received by political parties from within Malaysia or abroad are exempt from taxation based on paragraph 2(1) of the Income Tax (Exemption) Order (No. 22) 2002 [P.U.(A) 208/2002].
Tax Treatment on Funds/Donations Received by Politicians
Tax treatment for politicians is the same as for any other individuals, and taxation is imposed on any income received that is eligible for taxation in a given assessment year based on existing tax laws.
Tax Treatment on Funds/Donations Received from Within Malaysia by Politicians
Based on paragraph 2(1) of the Income Tax (Exemption) Order 2002 [P.U.(A) 208/2002], the exemption is only granted to political parties.
Therefore, this exemption does not cover funds/donations received by politicians and are subject to taxation under paragraph 4(f) of the Income Tax Act 1967 (ITA 1967).
Tax Treatment on Funds/Donations Received from Outside Malaysia by Politicians
Generally, the scope of Malaysian income taxation is based on any income accruing in or derived from Malaysia, including income received in Malaysia from outside Malaysia.
Therefore, funds/donations received by politicians fall within the scope of income taxation in Malaysia and are subject to taxation under paragraph 4(f) of the Income Tax Act 1967 (ITA 1967).
Tax Treatment on Rewards Received by Politicians
Rewards received by politicians from their salaries paid by the Government are exempt from taxation if they hold positions as stated in Schedule 6 of the Income Tax Act 1967 (ITA 1967).
According to Paragraph 30A of Schedule 6 of the ITA 1967, rewards issued by Malaysia and paid to the President or Deputy President of the Senate, Speaker or Deputy Speaker of the House of Representatives, Speaker of the State Legislative Assembly, Senators, Members of the House of Representatives, or Members of the State Legislative Assembly are exempt from tax.
Tax Treatment on Pensions Received by Politicians
Based on Paragraph 30A of Schedule 6 of the Income Tax Act 1967 (ITA 1967), pensions issued by Malaysia and paid to the President or Deputy President of the Senate, Speaker or Deputy Speaker of the House of Representatives, Speaker of the State Legislative Assembly, Senators, Members of the House of Representatives, or Members of the State Legislative Assembly are exempt from tax if they meet the specified conditions, which include reaching the age of 55 or being certified as incapacitated due to illness.
If a politician has been elected as both a Member of Parliament (MP) and a Member of the State Legislative Assembly (ADUN), the exemption applies to only one pension, the highest one received.
Reference:-
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