Fiscal Advantage of Waqf and the Rule of Tax Exemption for Charitable Purposes Under the Income Tax Act 1967

Abstract

This study explores the principle of waqf in the context of current tax policies governing waqf properties. In Islamic law, waqf is defined as charity whereby the donor endows the property in the name of Allah SWT for the benefit of the public at large. However, for tax exemption purposes, there is no specific provision in the Income Tax Act 1967 (ITA). Waqf is under the State List in the Federal Constitution and it comes under the jurisdiction of state governments. Currently, there is a misunderstanding about tax deduction in Section 44(6) and Section 44(11C) of ITA that includes waqf as a gift and gets the same tax treatment. Nevertheless, there are strong justifications which state that waqf does not fall within the scope of Section 44(6). The study will analyse the status of waqf institutions which are eligible for tax deduction and the reason why waqf does not fall within the scope of donation under section 44(6) of the ITA. The methodology used in this study is doctrinal legal research whereby the analysis focuses on the legal principle of waqf in Islamic law and the rule of tax exemption under the ITA. As a result, the study found that there is inconsistency in implementing waqf for tax rebate purposes. The recommendation of this study is that a comprehensive waqf guideline should be introduced to ensure consistent development of waqf to enhance the public interest.