Barry Streek
The Department of Finance has rejected tax reforms proposed by the Katz commission which could have been a lifeline to the financially troubled non-profit sector, despite support from political parties and the Department of Welfare.
The Katz proposals have been supported by a wide range of non-profit organisations (NPOs) and the influential South African Institute of Chartered Accountants.
At Tuesday’s joint meeting of the National Assembly’s portfolio committee on finance and the National Council of Provinces’s select committee on finance, the political parties informally indicated their support in principle for the Katz proposals. The head of the NPO directorate in the Department of Welfare, Saguna Gordhan, also said her department supported the ninth Katz report in principle.
But, despite this extraordinary level of consensus, the Department of Finance and the South African Revenue Service (Sars) refused to budge, offering a number of technical and bureaucratic excuses to block the concessions that would have helped NPOs achieve greater financial sustainability.
In case the NPOs did not get the message, finance Director General Maria Ramos and other senior financial officials did not attend the afternoon session of the committee when the NPOs made their representations, leaving Sars’s Mark Kingon to take the flack. Minister of Finance Trevor Manuel and Deputy Minister Sipho Mphahlwa were not present at any stage.
The Katz commission, on the other hand, was represented throughout the day and its members participated in the discussions.
Pierre du Toit, one of the commissioners, urged the department not to “bury the little people under details” and technicalities. He added: “Get on with it and if needs be, phase it in.”
Federal Alliance leader Louis Luyt told the department: “You are making the mass of NGOs suffer for a few,” while the commission’s chair, Michael Katz, told the department: “I hope this is your first shot and that we can renegotiate it.”
This view was supported by the National Assembly’s portfolio committee on finance chair, Barbara Hogan, who said she was “uncomfortable” with the department’s proposal that tax deductibility status be limited to education, including schools which, she pointed out, were not even NPOs.
Later, Katz pleaded: “Our great plea to this body is to get it going. It can be refined over time.”
As Hogan explained, the process now will be for a task team to draft a report after the hearings, and for this to be adopted by both the committee and the National Assembly. It would then be up to the Department of Finance to consider their views.
Judging by Tuesday’s evidence, it would be something of a surprise if the department changed its position – unless a political decision is taken to implement the Katz proposals.
Indeed, Ramos admitted that in the end it comes back to policy and “making policy choices”. Policy positions had to be taken and “education is such a clear policy direction”.
But when the Democratic Party’s Ken Andrew asked why pre-primary schools, the only education sector that does not receive direct government support, were not included in the list of educational bodies that could receive tax-deductible donations, Kingon said this would be problematic because many pre-primary schools were run by the teachers themselves.
So, the area of greatest need in education will not, it seems, get this benefit. The only significant Katz proposal that was accepted by the Department of Finance and Sars was for the definition of tax-exempt status to be extended to include the non-profit sector.
Even then, there was a sting in the tail – these exempt bodies will not be able to engage in any trading activities and they can only invest in registered financial institutions and listed securities.
The department and Sars rejected Katz proposals for donations to NPOs to have tax- exempt status, for income tax deductibility of donations, and for estate duty rebates on bequests.
They refused to support the extension of Section 18A, which provides for tax deductibility for donations to educational institutions, to all NPOs on the grounds that this would be “an indirect subsidy” and because “the government had to prioritise its expenditure programmes”.
Ignoring submissions and evidence to the committee that such a concession to NPOs was estimated to be less than 1% of government income and ignoring the Katz commission assessments, the department and Sars simply said: “The fiscus can’t afford an infinite number of public benefit organisations, which enjoy significant tax preferences.”
Katz proposals on what registered NPOs could invest in and their trading activities were also largely rejected.
On Tuesday afternoon, the NPOs gave evidence, with Eugene Saldanah of Non- Profit Partners pleading to the government and the committee “to create an environment in which non-profit organisations can flourish”. Christa Kuljian of the Forum of Northern Donors called for the creation of “a culture of giving”.
In the end, Zane Dangor of the Development Resource Centre summed it up by telling the committee: “I think it comes down to the issue of political will. We are handing the baton over to you.”
ENDS
— End —