The Prime Minister says the Inland Revenue Department will continue to engage with the charitable sector on a policy to cap donation tax credits, after one of his MPs criticised the policy.

On Thursday, Maungakiekie MP Greg Fleming told a charity event that the government's plan to cap the donation tax credit had "zero" logic, and that work was under way to fix it.

Revenue Minister Simon Watts said that was not the case, and Fleming has admitted he misspoke.

"The minister is aware of concerns from some charities and philanthropists about the effect this change could have on charitable giving, and I understand IRD are continuing to engage with the sector on this," Fleming told RNZ.

On Friday, Prime Minister Christopher Luxon said he was aware there were concerns from the charitable sector.

"There's no change from a government point of view, but IRD are continuing to engage with the sector. I know there are some concerns from the charitable sector; that's why IRD will continue to engage with them."

Donors can claim a third of their charitable donations as a tax credit, but from April they will be unable to claim a credit once they give more than $100,000.

The charities sector has expressed concern that the cap may make would-be donors consider dialling back their donations at a time the sector was already struggling.

Inland Revenue has been concerned the tax credit could be misused for tax planning purposes, when a donor makes a gift to a charity they control themselves.

Fleming said on Thursday he understood that, but felt the cap was a "sledgehammer to crack a walnut".