Barry Streek
Non-profit organisations are on the verge of victory in their long-standing battle to gain tax concessions from the government. This follows a draft report by the National Assembly’s portfolio committee on finance which endorsed last year’s Katz commission’s proposals to extend tax incentives to NGOs.
The committee’s draft report has rejected attempts by the Department of Finance to restrict the incentives to educational institutions only. An outline of the draft report was this week given by the committee’s chair, Barbara Hogan, and it is scheduled to be adopted after discussion and possible amendment today.
Two African National Congress members who sit on the committee, Rob Davies and Ben Turok, welcomed the draft report while the Democratic Party’s Ken Andrew said: “I am inclined to think we will support the report.” He also indicated that it could receive the backing of all parties.
Once adopted by the committee, the report will go to the National Assembly, but it is likely that the NGO campaign – co-ordinated by the Non-Profit Partnership, to overcome resistance by the Department of Finance and the South African Revenue Service (Sars) to introduce new concessions – will be victorious.
At present tax concessions are restricted to tertiary education institutions and education foundations, exempting these organisations from income tax, stamp duties, marketable securities tax, transfer duty, estate duty, donations tax, value added tax and regional services levies. They also enjoy some customs duty benefits.
Should these benefits be extended to NGOs which are registered under the Non- Profit Organisations Act they will be able to increase their finances, which have been drastically cut since foreign funding was either withdrawn or transferred to the government in the post-1994 period.
The committee’s report, which was drawn up by Hogan, is in line with the Katz Commission and concurs that the current statutory framework for the taxation of non-profit organisations is archaic.
The report rejects a finance department and Sars recommendation that these tax concessions be restricted to educational organisations, on the grounds that education receives support from the state, while the non-profit sector receives no direct support from the government.
Hogan told the committee this week that her draft report pointed out that the non-profit sector is playing an important role by delivering a wide range of services and assisting the state “by providing relatively cost-effective delivery of social services to the poor”.
South Africa has developed a substantial national network of non-profit organisations which have “contributed enormously to delivery in South Africa. It would be a pity to lose this and it should be given the resources to continue playing this role, particularly since foreign funding to the non-profit sector had been drastically cut down.”
The policy issue is the state’s gross revenue and the loss of finance would have to be balanced against the needs of society. Hogan said one of the most important implications of the proposals would be to promote sustainability of the non-profit sector.
Sars does not have the capacity to monitor these organisations, and should not be burdened with regulatory functions which lay outside the core function of a government revenue service.
This should rather be done in accordance with the Non-Profit Organisations Act, which is located in the welfare department, which should take this responsibility. These organisations should be permitted to earn income from directly related trading activities but non-related trading income, which should be housed in a separate subsidiary, should be taxed.
The tax incentives to the non-profit organisations involve income tax exemptions and donor deductible income. The state would lose income but it would not be a major loss. She did not propose removing the existing concessions but felt these should be extended to organisations which are promoting the government’s development priorities.
These concessions should be gradually introduced to see what the effects are so that it could be monitored and the non- profit organisations would not suffer seriously if, for some reason, they had to be withdrawn. They should apply to organisations which are engaged in the reduction of poverty and the provision of services to impoverished and disadvantaged people and areas.
The provision for donor deductibility will not result in serious losses to the fiscus and it could well stimulate the donation of additional funds to the non- profit sector. The exemption from estate duties could well result in the establishment of developmental foundations.
Hogan said the provision of donor deductibility is a standard part of tax legislation in other parts of the world and she felt strongly that as the state could not play a role in supporting the non- profit sector, resources and security to these worthy causes have to be unlocked.
The issue of tax privileges regarding the non-profit sector has to be weighed up against the benefits to society of unlocking resources that would otherwise not be available.
The definitions of non-profit organisations and what is meant by a cultural organisation would have to be carefully drawn up, and the effects of the proposed changes would have to be monitored regularly, but the principle should be that non-profit organisations should be supported. The ANC, according to Hogan, has requested a debate in the National Assembly on non-profit organisations.
ENDS