KUALA LUMPUR: Tax deduction approval under Subsection 44(6) of the Income Tax Act is not automatically granted to any institution, organisation or fund (IOF), but must instead be applied for and evaluated based on criteria set by the Inland Revenue Board of Malaysia (LHDN).
LHDN tax policy sector approval and monitoring division director Julie Adila Mat Hassan said that registering an entity as a non-governmental organisation or a non-profit organisation does not mean the entity automatically qualifies for the tax deduction approval.
“This approval must be applied for, evaluated and approved by the director-general of LHDN. 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,” she said as a guest on the Bernama Radio programme Fokus 30 yesterday.
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 stipulated 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 10% limit does not mean donors receive 10% of the total donation in return, 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 in the form of money or cash and supported by an official receipt, whereas contributions in the form of goods are not eligible for this tax deduction,” she said, as reported by Bernama.
Regarding eligibility criteria, Julie Adila stated that applying for IOFs must be centred around non-profit charitable activities and meet the provisions under Subsection 44(7) of the same Act.
Among the criteria evaluated are organisational objectives that must be open to all Malaysians and not limited to a specific group, as well as governance compliance, including the requirement that at least 50% of the board of directors consist of external parties.
On service digitalisation, she said that LHDN has made it mandatory for all new applications for approval under the subsection for IOFs to be submitted online via the e-Derma system on the MyTax Portal, effective June 15.
This step allows applicants to submit supporting documents without needing to visit an LHDN office, thereby streamlining the review and document management process, she said.
She said new applications by organisations and funds appointing tax representatives or agents can still be submitted manually with supporting documents via the LHDN portal before the e-Derma system is expanded to these categories in a later phase.
She added that LHDN also provides online facilities for processes related to the extension of approval periods, submission of Audited Financial Statements and Self-Review Forms, as well as amendments to IOF information.
Julie Adila advised members of the public who wish to donate and obtain tax deduction benefits to check the LHDN portal beforehand to ensure the organisation or fund still holds valid approval.
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 detected 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 their annual income,” she said.
