A Case Study on Corporate Social Responsibility on Tax Exemption

Abstract

This preliminary research is a study on the corporate social responsibility of Malaysian corporate company’s selection in channelling their fund to a needy person or organization. Evaluation has been done to a Malaysian east coast regent company. Nowadays, company’s awareness level on corporate social responsibility (CSR) is high. As such, the effort in nourishing the awareness will be worthless should the company channels it to the wrong party. Furthermore, the said company might be refused for tax exemption entitlement. Therefore, there are specific criteria to be fulfilled in selecting the ideal personnel or organization. Besides, it is essential for the company to have a crystal-clear view on CSR type that have been designated for them; to qualify them for tax exemption. As such, qualitative method is used in determining which factors of a person or an organization criterion is/are most contributed to channel funds. Researcher will analyse gathered data from participants and compared it to the existing method used in Malaysia. The outcome might be useful corporate companies; as which it can be used as guidelines in measuring their current performance of collecting tax; resulting in correct allocation of fund and contribution to the righteous parties.

Keywords: Corporate social responsibilitytax exemptiontax awareness

Introduction

Corporate social responsibility is one of the company’s activity to contribute good returns to the society. To encourage this activity, companies are benefited in tax exemption term from the Inland Revenue Board of Malaysia. Khan (2010) mentioned that, in ensuring the long-term continued existence of the company, the need to undertake social responsibilities and to report such activities at a regular interval have been recognised as essential device for organizations towards. Pisani et al (2017) corporate social responsibility (CSR) reporting has been receiving a considerable attention to researchers and practitioners for more than two decades.

Companies Act 1965 protects the rights and interests of shareholders and investors. Section 169(1), Section 174(1) and Section 174(2) of the Act denotes that all companies in Malaysia, regardless of their size, private or public, need to have their annual accounts audited by an independent auditor. Further they need to pay tax. It is supported by Inland Revenue Board of Malaysia rules that, all person staying in Malaysia for more than 182 days are considered as residents; under Malaysian tax law, regardless of nationality.

Nasir et al (2015) had found that, CSR has become a part of the company entity. The company is expected to run more CSR program in society and not only focusing on financial performance. The performance of CSR programme in Malaysia moved to a higher level over time; and the government and multiple influence parties (Bursa Malaysia and Companies Commission of Malaysia) are actively encouraging and raising awareness to corporates for them to include CSR as a part of their business agenda (Senawi et al., 2016). This is consistent with the previous study by Waworuntu et al. (2014) which had found an increment of CSR disclosure by the company in ASEAN from 2009 to 2011.

Problem Statement

According to Datuk Seri Peter Chin Fah Kui-former Energy, Green Technology and Water Minister; most of the company is aware on the importance of CSR; but less than 10 percent of Malaysian companies adopt CSR but unfortunately do not apply CSR as a part of the company agenda. This statement also argued by study of Lu and Castka (2009) and Abdulrazak and Ahmad (2014) that most of the companies in Malaysia is aware the importance of CSR but their conclusion in the study is, the manager do not comprehend the importance of CSR. While study by Rashid and Ibrahim (2002) had stated that, the study on corporate social responsibility (CSR) in Malaysia is less and the last study on this area is on 1998. A study on corporate company by Ghazali (2007) had found that, there is considerable variability amount from among large company traded in Bursa Malaysia in social activity stated in their annual report. This shows companies in Malaysia have limited exposure on how corporate social responsibility will able to help them in minimizing the company income tax.

Study conducted by Zainal and Zainuddin (2013) suggested that the further study of appropriate mechanism, regulation and guidelines for company to become responsible to community.

Research Questions

There are two (2) research questions has been derived for this study. They are as follows:

RQ 1 – Which type of CSR that eligible for tax exemption do companies most preferred in Malaysia?

RQ 2– How do companies determine the criteria of CSR receivers?

Purpose of the Study

Upon completing this study, the researcher will gain better understanding of tax exemption in term of CSR among corporate sector. In addition, it helps the researcher to determine factors that enable any individual or organizational to be entitled for the funds. Furthermore, this study helps to disseminate information to needy parties in regards of the funds existence. To potential fund receiver, this study will be beneficial for them in self-scanning on fund receiver criteria fulfilment and recognize appropriate CSR activity that is reasonable to them.

Next section will explain the methodology for this research. The subsequent section will be analysis of the findings, and lastly the concluding remarks and suggestion for future.

Research Methods

Findings

This section is an explanation and interpretation of collected data and findings discussion. The analysis is relevant to answer the research questions. From the interview session, respondent has answered several questions to strengthen and support the analysis.

Conclusion

As a conclusion, this study is exploring the Corporate Social Responsibility (CSR) performed by corporate company on their method in channelling funds to needy person. Based on interview session with company’s owner and the manager, it showed this company has awareness on their responsibility towards the community, which was shown by doing CSR program at least once a year. Furthermore, the owner also comprehends that donation channelled to selected institution in their CSR program will be given 10 percent tax exemption from government for the aggregate income of the previous year. This fact supported study of Lanis and Richardson (2013) that positive relationship between the tax aggressiveness and CSR disclosure by the company. Analysis shows that, company gave funds and favour the elderly residents in their activities during the program. They had followed certain methods in determining the receiver criteria. Evaluation on few potential receivers was done and later, the selected one will receive fund and visit from the company. The rest of the potential receivers will also receive some amount of fund contribution based on discretion of the owner.

Suggestions to be listed for this study are; first, continuous support from all parties including government especially IRBM in promoting CSR program as a regulation of the corporate company can increase awareness and “value” of the company in the community. This is argued by the research of Sadou et al (2017) in measuring the quality of the disclosure of CSR in slightly increase between 2011 to 2014, it shows company needs to be persuaded to do CSR program.

Second, government as the main party and act as the tax collector should increase the maximum allowable tax exemption for corporate company in encouraging companies to implement CSR programme. Third, the scope of CSR programme should be expended by the company to wider sectors as now it covers on education, donation, green technology, child development program and HIV awareness UNCEF MALAYSIA (2013) in order to ensure the fund is spread to variety of people needed. This is argued by Azlan et al (2013) that great understanding of community need’s will benefit the firm in long run.

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