(Tax Update) Tax Deductible for Hungry Ghost Praying Expenses

In Malaysia, many businesses observe the Hungry Ghost Month by holding prayer sessions, which may include offerings and ceremonies.

Understanding the tax implications of these expenses is crucial, especially given the cultural significance of this period. Most taxpayer

Here’s a detailed explanation of how these expenses can be categorized and which are tax-deductible.

1. Tax Deductible Expenses (Section 33, Income Tax Act 1967)

Under Section 33(1) of the Income Tax Act 1967, expenses that are "wholly and exclusively incurred in the production of income" are deductible. For businesses, this includes expenses that are directly related to operations and maintaining employee morale or customer relations.

a) Staff Refreshments

Expenses for food, drinks, and other refreshments provided during the prayer sessions can be classified as staff refreshments. These expenses are generally deductible under Section 33(1) if they are part of the company’s customary practice to foster goodwill and maintain good working relationships with employees.

The deductibility is further supported by Public Ruling No. 1/2003 on "Perquisites From Employment," which clarifies that reasonable staff welfare expenses, such as refreshments during events, are allowable.

b) Expenses for Staff Welfare

Related expenses, such as venue setup and basic offerings that are part of the staff’s well-being during the prayer ceremony, can also be considered deductible under the same section. These are seen as necessary for maintaining a harmonious workplace, thus directly contributing to the production of income.

2. Non-Deductible Expenses (Section 39, Income Tax Act 1967)

Under Section 39(1) of the Income Tax Act 1967, certain expenses are specifically disallowed as deductions, even if they are related to business activities.

a) Ceremonial Items

Expenses incurred for ceremonial items such as papercraft, incense papers, and other related materials used during prayers fall under this category. These items are considered non-business expenses, primarily personal or cultural, and therefore, do not qualify for a deduction under Section 39(1).

b) Excessive Expenditure

If the expenses for refreshments or other related items are deemed excessive or extravagant, they could also be disallowed under Section 39(1) as they may not be seen as wholly and exclusively for business purposes.

3. Other Relevant Sections and Public Rulings

Beyond Sections 33 and 39, Public Ruling No. 3/2013 on "Entertainment Expenses" provides additional insights. It clarifies that expenses on food and beverages for employees during work-related events are generally allowable, provided they are reasonable and not excessive.

Summary

In conclusion, when it comes to tax-deductible expenses during the Hungry Ghost Month:

Expenses for food, drinks, and related items provided during prayers can be tax-deductible under Section 33(1) and can be categorized as staff refreshments or staff welfare.
Expenses for papercraft, incense papers, and similar items are not deductible under Section 39(1).

Businesses should ensure that these expenses are reasonable, directly related to the production of income, and properly documented to support their tax filings. For further guidance, consulting with a licensed tax agent is advisable to ensure compliance with the Income Tax Act 1967 and related public rulings.

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