MKI: Next-of-kin must settle deceased’s tax arrears

MKI: Next-of-kin must settle deceased’s tax arrears

KUALA LUMPUR: The Muzakarah Committee of the National Council for Islamic Religious Affairs Malaysia (MKI) has ruled that outstanding income tax left by deceased Muslims must be settled by next-of-kin using the deceased’s assets before the distribution of inheritance.

MKI Muzakarah Committee chairman Datuk Dr Nooh Gadut said the ruling was made at the committee’s 122nd meeting following a syariah study and stakeholder consultations.

“The Muzakarah decided that outstanding income tax arrears constitute a debt that must be settled. Payment must be made using only the assets left behind by the deceased,” he said.

The issue surfaced in May 2023 when the Inland Revenue Board (LHDN) clarified that such liabilities do not lapse automatically upon death. Under Section 74 of the Income Tax Act 1967, outstanding tax cannot be automatically waived even after a taxpayer has died.

Former LHDN chief executive officer Datuk Dr Mohd Nizom Sairi was previously reported as saying that official notices would be issued to the legal representatives or estate or asset administrators of deceased taxpayers to recover outstanding amounts.

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He said LHDN would trace the lawful representative or estate administrator if the deceased left behind assets, as revenue arrears cannot be left uncollected.

“Outstanding tax liabilities may only be written off after a certain period, once all prescribed procedures have been exhausted,” he was quoted as saying.

Prior to the MKI ruling, the issue had drawn differing views among state muftis. Some held that unpaid income tax should be treated as a debt and settled from the asset before the distribution of inheritance under faraid, while others argued that taxation is a government requirement rather than a syariah obligation.

Former Penang mufti Datuk Seri Dr Wan Salim Wan Mohd Noor said settling such arrears was permissible and encouraged, citing a hadith narrated by Imam al-Tirmidhi that a believer’s soul remains bound by debt until it is settled.

Similarly, former Negeri Sembilan mufti Datuk Mohd Yusof Ahmad said all debts must be settled before inheritance is distributed, including obligations owed to government agencies such as the National Higher Education Fund Corporation (PTPTN).

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However, former Pahang mufti Datuk Seri Dr Abdul Rahman Osman had previously maintained that income tax was not a syariah-mandated obligation, unlike zakat, and therefore did not fall within the category of religiously compulsory debts.

Following the divergence of views, the Muzakarah Committee conducted a detailed syariah review and stakeholder consultations before concluding in October 2023 that outstanding income tax owed by deceased Muslims must be settled from the estate, in line with general Islamic principles governing debt settlement.