Kuala lumpur: Tax deduction approval under Subsection 44(6) of the Income Tax Act (ITA) 1967 is not automatically granted to any Institution, Organisation, and Fund (IOF), but must instead be applied for and evaluated based on criteria set by the Inland Revenue Board of Malaysia (IRB).
According to BERNAMA News Agency, IRB Tax Policy Sector Approval and Monitoring Division Director Julie Adila Mat Hassan clarified that registering an entity as a Non-Governmental Organisation (NGO) or a non-profit organisation does not automatically qualify the entity for the tax deduction approval. She emphasized that the approval process requires an application to be submitted, evaluated, and approved by the Director General of IRB. The evaluation criteria include objectives, actual activities, constitution, governance, and compliance with stipulated conditions.
She further explained that the approval benefits both parties, as approved IOFs receive tax exemptions on income, while individual or corporate donors can qualify for tax deductions on contributions, subject to certain conditions and limits. The tax deduction is capped at 10 percent of the donor's aggregate income and is not a rebate or cash refund.
"This 10 percent limit does not mean donors receive back 10 percent 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," Julie Adila stated. Contributions must be monetary and supported by an official receipt; non-monetary contributions are not eligible for this deduction.
Regarding eligibility criteria, Julie Adila noted that applying IOFs must focus on non-profit charitable activities and comply with Subsection 44(7) provisions of the same act. Organisational objectives must be inclusive of all Malaysians and not limited to specific groups. Governance compliance, including at least 50 percent of the Board of Directors being external parties, is also required.
On service digitalisation, she announced that IRB has mandated the submission of new applications for approval under the subsection for IOFs via the e-Derma system on the MyTax Portal, effective June 15. This change allows for the submission of supporting documents online, streamlining the process.
For new applications by IOFs appointing Tax Representatives or Tax Agents, manual applications with supporting documents can still be submitted through the IRB Portal, although the e-Derma system's use will expand to these categories later. IRB also offers online facilities for processes related to approval period extensions, Audited Financial Statements submission, Self-Review Forms, and amendments to IOF information.
Julie Adila advised potential donors to verify the approval status of organisations or funds on the official IRB Portal to ensure they hold valid approval. Checks can be made via the Donation Approval Check section, and reliance on social media statements or posters is discouraged.
"IRB regularly conducts compliance audits, and any IOF found violating conditions or regulations may have its approval revoked. Donors should keep official receipts bearing printed information of the Subsection 44(6) approval as evidence when reporting annual income," she concluded.