Income and financial characteristics of taxable non-profit organizations (NPO) in Malaysia

• Published in: Proceedings of the 29th International Business Information Management Association Conference - Education Excellence and Innovation Management through Vision 2020: From Regional Development Sustainability to Global Economic Growth
• Main Author: Ali N.A.M.; Ahmad K.; Shuid S.H.
• Format: Conference paper
• Language: English
• Published: International Business Information Management Association, IBIMA 2017
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85029761672&partnerID=40&md5=0a49164fdd5443145fb9fbbe366246de

Non-profit organizations (NPOs) are typically exempted from income taxation. They may, however, pay taxes on profits generated from activities unrelated to their primary exempt purposes. However, information on these sources of income and the type of NPOs subject to tax is not available for public scrutiny as such information is usually accessible only to those with a personal stake or those actively involved in such organization of the same nature. This study intends to identify the financial characteristics of the taxable NPOs in Malaysia. It also examines the relationship between the source of income and taxation paid by these taxable NPOs. Using a database of 434 taxable NPOs, it is found that the main categories of NPOs are involved in welfare and educational activities. Income of these NPOs were generated from dividends, interest, rental of premise and sales besides relying on their conventional income from membership fee, grant, and donation. It was also revealed that sales, as source of income for NPO has significant positive relationship with tax paid which indicates that higher sales lead to higher tax paid by NPOs. The analysis on the financial characteristics and tax reporting of the taxable NPOs may assist the tax authority to monitor their income as to avoid them involved in any tax avoidance or tax evasion activities.