Discussing casually with other tax agents on this matter - nobody has a conclusive answer to give, because here in Malaysia, it's never been a contended issue before.
These are the arguments for and against that I can think of ... I'd appreciate feedback from other members of the accounting community :-
1) Malaysia follows UK tax law. In the UK, by case law, offerings taken up for pastors/ ministers etc. ARE taxable.
2) The offering is derived in the office of a minister - ie. it is given BECAUSE he/ she is a pastor/ minister.
Against:- 1) Love offerings are unsolicited gifts. Gifts in Malaysia are not taxable as it is a capital receipt. In the USA, love offerings that are unsolicited and given as a token of love, generosity etc. are NOT taxable.
2) We, the church members, are not claiming a tax-deductible receipt on love offerings given. Why should the pastor/ minister have to pay tax when what we give is out of our net-tax income?
Interesting, isn't it?
I was pretty shocked to hear from a friend of mine that a Christian organization that she works with was penalised by IRB for not paying the witholding tax in the two occassions given below:-
1) Not witholding the tax on offerings given to foreign speakers who came to her organization to teach
The Christian organization is not a church - it is registered as a company limited by guarantee.
Foreign speakers will come off and on to teach for a few days (less than a week), and normally the organization will give the speakers an offering before they leave.
It was held by IRB that the witholding tax should have been witheld and remitted to IRB within 30 days of the offering being given to the speaker.
Now, the question is - does that mean all offerings given by all churches to foreign preachers (missionaries, evangelists, apostles etc.) who come to preach at their church should be subject to witholding tax as well?
2) Not witholding the tax on 'royalties' from sale of CD's of messages by foreign speakers
The Christian organization was given permission by the foreign speakers to duplicate and distribute CD's of the messages they had preached. Part of the offering for the speakers was listed as 'royalties' (remember that 'offerings' were witholding taxable?).
It was held by IRB that the witholding tax on royalty payments (although there weren't, strictly speaking, royalties to pay!) should have been witheld and remitted to IRB.
So does that mean that even though permission has been given by foreign speakers to churches they preach in to copy and distribute their messages without royalty payments, churches must remit the witholding tax on 'royalties' on those messages to IRB?