KUALA LUMPUR: Tax deduction approval under Subsection 44(6) of the Income Tax Act 1967 is not automatically granted to any institution, organisation and fund (IOF), but must instead be applied for and evaluation based on criteria set by the Inland Revenue Board of Malaysia (LHDN).
The board's Tax Policy Sector Approval and Monitoring Division director Julie Adila Mat Hassan said that registering an entity as a non-governmental organisation (NGO) or a non-profit organisation does not mean the entity automatically qualifies for tax deduction approval.
"This approval must be applied for, evaluated, and approved by the director-general of LHDN," she said during an appearance on Bernama Radio's Fokus 30 programme on Wednesday (Sept 9).
"It is not an automatic status. Every application is evaluated based on objectives, actual activities, constitution, governance, and the IOF's compliance with stipulated conditions."
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She noted that the approval benefits both parties, as approved IOFs enjoy tax exemptions on income received, while individual or corporate donors qualify for tax deductions for contributions made, subject to conditions and limits.
However, she clarified that the tax deduction is limited to 10% of the donor's aggregate income and is not a rebate or a cash refund.
"This limit does not mean donors get back 10% of the total donation, nor is it a cash rebate. It is the limit of the amount that can be deducted from aggregate income for tax calculation purposes.
"Additionally, contributions must be monetary and supported by an official receipt, whereas contributions in the form of goods are not eligible for this deduction," she added.
She also advised those wishing to claim tax deductions for donations to IOFs to check on the LHDN portal if the organisation's approval status is still valid.
She said checks can be made via the Donation Approval Check section, and the public is advised not to rely solely on posters or statements on the organisations' social media pages.
"LHDN regularly conducts compliance audits. Any IOF found violating conditions or regulations can have its approval revoked or terminated.
"Therefore, donors are advised to keep official receipts that bear printed information of the Subsection 44(6) approval as supporting evidence when reporting annual income," she said.
On eligibility criteria, she said IOFs' applications must centre on non-profit charitable activities and meet provisions under Subsection 44(7) of the Act.
Among the criteria: organisational objectives must be open to all Malaysians and not limited to a specific group; and governance compliance, including the requirement that at least 50% of the IOF's board of directors consist of external parties.
On service digitalisation, Julia Adila said it became mandatory for all new tax deduction applications under the subsection for IOFs to be submitted online via the e-Derma system on the MyTax Portal, effective June 15.
She added that this allows applicants to submit supporting documents without needing to visit an LHDN office, streamlining the review and document management process.
New applications by IOFs appointing tax representatives or tax agents may still be made manually and accompanied by supporting documents through the LHDN portal for now, she said, while the use of the e-Derma system will be expanded to those categories in a subsequent phase. – Bernama
