Tax Incentive for Islamic Housing Loans in Malaysia

In the assessment years 2009-2010, Malaysia's Income Tax Act, 1967 allowed deductions for interest paid on individuals’ housing loans up to RM10,000 for 3 years of assessment. Data from Inland Revenue Board Malaysia revealed that RM1.609 billion of exemptions was allowed from 2012 to 2014. Majority with annual income of less than RM100,000 have benefited from this exemption but the tax relief was later repealed. This study showed that any reconsideration of similar tax incentives would be beneficial to several stakeholders. Using the psychological theory the study explains why taxpayers are keen to respond favorably towards any incentives on housing loan.