Abstract:

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. Some governments imposed tax on NPOs’ unrelated business activities to avoid unfair competition with the for-profit organization and to raise revenue. However, information on these sources of income and the type of NPOs subject to tax is not available for public scrutiny as such information are usually not disclosed to the public.  Such information is only accessible to those with a personal stake or those actively involved in such organization of the same nature. Hence, this study intends to identify the characteristics as well as the source of income of these taxable and non-taxable non-profit organizations (NPO) in Malaysia. Using a database of 839 NPOs, the demographic data, as well as the tax status of the NPOs, have been gathered. It is found that out of 839 NPOs, 405 (48.3%) are tax exempted, mainly from the categories of welfare and educational NPOs. Also, income generated for the taxable NPOs derived from dividends, interest, rental of premise and sales besides relying on the conventional type of income from membership fee, grant, and donation. The study also examine the relationship between the source of income and taxation paid by the taxable NPOs. It was 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.