Double deduction for scholarships provided by companies

Double deduction for scholarships provided by companies

In Budget 2019, to encourage talent development in line with Industry 4.0 aspirations, the Government proposed that a double deduction be given on scholarships provided by companies to Malaysian citizen and resident students pursuing studies at technical and vocational levels, diplomas and degrees in the fields of engineering and technology (see Special Tax Alert: Highlights of Budget 2019 – Part I).

To legislate the proposal, the Income Tax (Deduction for the Sponsorship of Scholarship to Malaysian Student Pursuing Studies in the Field of Engineering and Technology at the Technical and Vocational Certificate, Diploma or Bachelor’s Degree Levels) Rules 2021 [P.U.(A) 468] were gazetted on 23 December 2021. The Rules provide that in ascertaining a company’s adjusted income from its business for a YA, a double deduction shall be allowed for the expenses incurred and paid by the company in that basis period, for sponsoring a scholarship for a student according to the period of the relevant sponsorship agreement. 

The double deduction is given for the following expenses incurred for sponsoring the scholarship:

(a)  Payment required by the relevant institution or higher educational institution           in relation to the course of study, and

(b)  Educational aid and reasonable cost of living expenses throughout the                       student’s period of study at the relevant institution or higher educational                 institution.

Any amount refunded by the student to the company shall, when received, be treated as gross business income of the company derived from Malaysia in the basis period for that YA.

The Rules shall apply to a company which: 

(a)   Is a Malaysian resident company incorporated under the Companies Act 2016

(b)  Sponsors a scholarship for a student pursuing a full-time course of study in               the field of engineering and technology at a:

• Technical and vocational certificate level in an institution, or
•  Diploma or bachelor’s degree level in a higher educational institution

and

(c)   Executes a scholarship agreement with a student between 1 January 2019              and 31 December 2021

The following terms have also been defined in the Rules:

(a)  Institution

Institution recognized by the Malaysian Qualifications Agency or the Skills Development Department

(b)  Higher educational institution

Institution established under the Universities and University Colleges Act 1971, Universiti Teknologi MARA Act 1976 or the Private Higher Educational Institutions Act 1996

(c)   Student

Means an individual:

(i)  Who is a Malaysian citizen and Malaysian resident

(ii)  Who receives a full-time course of study in the field of engineering and               technology at a:

- Technical and vocational certificate level, in an institution, or

- Diploma or bachelor’s degree level, in a higher educational institution

(iii) Who has no means of his own, and

(iv) Whose parents’ or guardians’ total monthly income do not exceed                       RM10,000

The Rules are deemed to be effective from YA 2019.