By Assoc Prof Dr Anna Azriati Che Azmi
Faculty of Business and Economic, Universiti Malaya

I would like to start with a question: 
Have you ever considered the important roles that non profit organisations have played in our society?

If you have, then I invite you to read on to see how we can help them better.

We make contributions to non profit organisations especially if we believe in the causes that these organisations stand for. Some of these organisations can be promoting activities involving the welfare of animals, mental health awareness and welfare of refugees. In a way, these non profit organisations also help the government because their causes are for the benefit of the public or society and may reduce government spending in the areas these organisations are involved in.

We also know that contributions to these organisations, which are approved by the Inland Revenue Board, are able to give us a tax deduction, within certain threshold of course. So we will not only feel good in making the contribution but get to reduce our tax cost at the same time. Our tax system does promote taxpayers to be generous to the society. The question now is, is there another way to make the tax system promote this generosity even better than it does now?

Let’s look at what research says on this. A study was conducted by two researchers in the US on the effectiveness of two types of tax treatment for contributions. For the first type of tax treatment, the contribution is somewhat similar to the way our tax system treats contribution to these non-profit organisations, which I will refer to as the rebate incentive.

The second type of tax treatment, the treatment of the contribution is matched by a specified amount by the government. So for example, if a taxpayer makes a contribution of RM1,000 to the non-profit organisation, then the government would match this by adding, say another 10% on the contribution to the same non-profit organisation. This is called matching incentive.

This study examined this objective by varying the amount of endowment and rates given under the matching and rebate incentives to the study participants. They also gave participants various choices of organisations, which are approved by the tax authorities in the US, to make contributions, ranging from health concerns and environmental and even international non-profit organisations. The result of this study showed that total contributions by the study’s participants are higher under the matching incentives compared to the rebate incentives as much as 1-2.2 times.

Some researchers argue that the matching incentives motivate higher contribution because it is based on the idea of cooperation which enhances the feel good factor whereas the rebate incentives focus on the rewarding strategy. Another researcher argued that the matching incentives offer a higher total contribution than those earned by the non-profit organisations under the rebate incentives. This is because the rebate incentives are only concerned with
contribution made by one person, the contributor.

The matching incentives have been implemented by tax system in many countries. Could this matching incentives implemented by our tax system benefit us as Malaysians? We can introduce it gradually by selecting non-profit organisations which have a good track record in carrying out their causes to be offered to move to the matching incentives. These organisations could be given a scheme of claiming contributions under the matching incentives and of course be subjected to audits to ensure proper compliance on the claiming
procedures.

So what do you think? Could we make our tax treatment on contributions to non-profit organisations better?