Abstract:

It is a common notion that the non-profitable organization (NPO) will not be taxed due to its charitable nature although there are NPOs which are subject to being taxed under the legislation due to part of their income earned from non-related to the non-profit motives.  However, the tax information on these NPOs is not available for public scrutiny as such information are usually not disclosed to the public freely.  This study explores the financial characteristics of taxable and non-taxable non-profit organizations (NPO) in Malaysia. Using a database of 839 NPOs, the demographic data, tax status and the financial characteristics of the respective NPOs have been gathered. It was found that out of 839 NPOs, 434 (51.73%) are taxable and 405 (48.3%) are non-taxable NPOs respectively, which mainly come from the categories of welfare and education.  It was also revealed that two financial statements commonly prepared by the taxable and non-taxable NPOs are the Statement of Cash Flow and Balance Sheet. Non-taxable NPOs prefer to engage Big Four audit firm as compared to the taxable NPOs.  The main sources of income for both types of NPOs are the membership fee and donation.  Qualitative data was also gathered from the interview conducted on the NPOs to have a better insight of their operation. Overall, there is not much difference between the taxable and non-taxable NPOs in terms of their financial characteristic except for certain NPOs which are exempted from tax due to their charitable nature.