This article is part of our Inside ESG Reporting series, where SuSciCo shares insights on making ESG disclosures accurate, credible, and aligned with global and Malaysian frameworks

When companies donate products—such as toothpaste, food packs, or school supplies—they face an important question: How Should Companies Disclose Charity in ESG Reports and Tax Relief Donation Malaysia?

This issue is not just about good intentions. It is also about compliance. Financial reporting, ESG disclosure, and tax relief donation Malaysia rules all take different approaches. To stay credible, companies need a tri-track valuation approach:

1. IFRS / MFRS (financial statements)
2. ESG & Sustainability Reporting (GRI Standards & Global Frameworks)
3. Malaysian Income Tax Act & LHDN (tax reporting)

1. Financial Reporting (IFRS / MFRS)

Framework: IAS 2 Inventories / MFRS 102

• Valuation: Carrying amount = purchase or production cost + inbound transport.
• Distribution costs: Outbound delivery is not part of cost. It is expensed separately.
• Expense recognition: When goods are donated, the carrying amount is derecognized and recorded as an expense.

Why it matters: This approach ensures fair and consistent reporting under IFRS.

2. ESG & Sustainability Reporting (GRI Standards)

Frameworks: GRI 201-1, GRI 413-1.

• Valuation (Depends on Methodology): Unlike financial accounting, ESG valuation depends on the specific community investment methodology your company adopts:

  • Cost-Basis (The B4SI Standard).

  • Fair Market Value (FMV).

Best practice: Check which ESG rating agency or methodology your company subscribes to. Ensure consistency. If using FMV for impact reporting, state clearly how it was determined, but ensure the financial cost is kept for tax and audit purposes.

3. Malaysian Tax Rules (LHDN & ITA 1967)

Malaysian tax law strictly relies on the cost of the contribution and distinguishes between donations and business expenses:

• Section 44(6) – Approved Donations: Only cash donations to approved institutions qualify. This is deducted from Aggregate Income, capped at 10%. In-kind donations are excluded.

• Section 44(11C) – National Interest: In-kind donations for national interest projects approved by the Ministry of Finance (MoF) are deductible at cost.

• Section 34(6)(h) – Allowable Expenses (CSR): Provision of services or public amenities (CSR projects) approved by the MoF are treated as special allowable business expenses (deducted from Gross Business Income), valued strictly at the cost incurred by the company.

Best Practice: The LHDN does not recognize Fair Market Value (FMV) for in-kind contributions. Ensure all tax claims are backed by cost evidence (invoices, receipts, MoF approval letters) and classified correctly as either an S.44 donation or an S.34 expense.

Why This Matters

Misalignment between financial, ESG, and tax relief donation Malaysia rules creates risk. Companies face:

• Misstatements in accounts
• Greenwashing accusations
• Tax penalties

Execution requires aligning finance, sustainability, and tax functions. This is where many companies struggle.

Final Takeaway

Charity must be disclosed correctly:

• Financial statements → Cost
• Sustainability reports → Cost or FMV (depending on the ESG framework adopted)
• Tax returns → Cash or cost, under tax relief donation Malaysia rules

This approach ensures compliance with IFRS, GRI, and Malaysian tax law while building ESG credibility.

How SuSciCo Can Help

At SuSciCo (Sustainability, Science & Consulting), we:

• Assist in design valuation policies that align with ESG donation Malaysia requirements.
• Support companies in building credible ESG strategies.

📩 Contact SuSciCo today for expert ESG and reporting support.

⚖️ Disclaimer: This article is for informational purposes only and does not constitute accounting or tax advice. Please consult your auditors or tax advisors for specific applications.

References

Accounting & Financial Reporting (IFRS / MFRS)

• International Accounting Standards Board. (2024). IAS 2: Inventories. IFRS Foundation. RB2024-A – Issued IFRS Standards
• IFRS Foundation. (2024). Conceptual framework for financial reporting. IFRS Foundation. https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/

Tax Deduction (Malaysia)

• Inland Revenue Board of Malaysia. (2024). Public ruling no. 4/2024: Tax treatment on donations. Lembaga Hasil Dalam Negeri Malaysia. https://www.hasil.gov.my/media/d2wh4ykj/pr-no-4-2024.pdf
• Parliament of Malaysia. (1967). Income Tax Act 1967 (Act 53). https://www.hasil.gov.my/media/znonhmuj/20231101-income-tax-act-1967-act-53.pdf

SuSciCo helps in implementing Sustainability Practices

At SuSciCo, we help companies implement a Customer-Centric Sustainability approach by integrating ESG principles into their strategies. Our services include GHG management, sustainability reporting (GRI, IFRS, Bursa Malaysia), supply chain optimization, and ISO 14001 EMS development. We offer PCF and LCA assessments, sustainable procurement strategies, and waste management solutions to align products and operations with customer expectations. Through tailored ESG training and stakeholder engagement, we empower businesses to reduce environmental impacts, foster innovation, and build trust for sustainable growth.