Govt proposes tax breaks for NGOs

The South African Revenue Service (Sars) has published far-reaching draft proposals to solicit public comment on granting income tax exemptions to a wide range of NGOs and to extend the list of organisations to which tax-deductible donations may be made.

The proposals, which are expected to be approved later this year, will enable the non-profit sector to gain greater financial self-sufficiency. The Non-Profit Partnership (NPP), which has spearheaded the campaign for NGO-friendly amendments to South Africa’s income tax laws, has welcomed the proposed changes to existing legislation.

However, the NPP said that although the draft lists indicated that Sars had acknowledged it was necessary to extend tax exemption and other benefits to a wider range of non-profit organisations, its coverage did not go far enough.

The extension of the list of organisations whose donors are entitled to tax deductions is largely aimed at ensuring that these groups incorporate all forms of education, including adult basic education, the training of unemployed people, bridging classes to enable people to enter tertiary institutions and the building of schools and classrooms. It will also tighten up existing definitions of eligible organisations.

The draft list for income tax-exempt status includes a wide range of non-profit organisations, including religious organisations, cultural institutions such as museums, art galleries and libraries, animal welfare and environmental groups, research and amateur sporting bodies. Sars intends to hold a series of workshops with the relevant groups before submitting the proposals to Minister of Finance Trevor Manuel for his approval.

Tax concessions to non-profit organisations were first announced last year when Manuel presented his budget to Parliament after a concerted campaign by the NGO sector for tax incentives to enable it to survive the withdrawal of foreign donor funds and to promote self-sufficiency.

The Katz commission recommended that donors to most NGOs and cultural institutions should be entitled to tax deductions for donations, but revenue service officials expressed concern about possible abuses. They urged that the government should proceed cautiously before extending the provisions so that Sars could develop the capacity to monitor the implementation of the concessions.
The officials also estimated that the new concessions would cost the treasury R100-million in 2000/2001 and between R300-million and R500-million in the next few years.

The draft list includes one category that covers “public benefit activity list” entitling donors to tax deductions; and another of organisations eligible for income-tax exemption. The proposals are likely to dominate the two-day international conference on tax and the non-profit sector to be held in Johannesburg on March 28 and 29.

NPP director Eugene Saldanah said the proposed lists would be discussed in detail with organisations around the country and a final comment will be made to Sars. “We appeal to civil society organisations to scrutinise the lists closely and to check whether their sectoral activity is represented. The lists are an essential cog in the wheel of the legal machinery that will bring better and broader tax benefits to the non-profit organisations sector and are long overdue,” Saldanah said.

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