Steven Friedman
Second look
All those who matter in our society are eager that we become “world class” in many things. Encouraging people to serve society without profit is not one of them.
While we battle to outdo the world in business, sport or Constitution-making, in offering incentives for giving to non-profit organisations we lag behind not only North America and Europe, but countries such as India. Countries encourage giving to non-profits by awarding tax breaks many offer far more generous concessions for those who donate to non-profit activity than we do.
The need for stronger tax incentives for those who give to non-profits is the topic of an international conference to be convened by the Non-Profit Partnership (the NPP) in Midrand next week. The NPP, an alliance between the South African NGO Coalition, South African Grantmakers’ Association and Kagiso Trust, hopes the gathering which will bring specialists from Britain, India and the United States together with local actors will heighten public interest in the need for incentives for giving, introduce international experience into our local debate and create a forum for testing new ideas on tax reform.
Government representatives are expected at the meeting, so it might reveal something about official thinking on the issue.
Making tax breaks for those who donate to non-profits a key issue for debate is hardly easy; the relationship between tax for non-profit donors and the interests of key sections of society is unclear to most. The NPP therefore faces formidable obstacles in its attempt to raise the issue’s profile.
And yet a better tax deal for non-profit donors is central to our chances of achieving our goals as a society.
While research on this issue is still needed, it seems likely that the government and society may benefit in money terms by offering tax incentives to those who give to non-profits. If, as in other countries, the effect is to stimulate giving by local donors, this may prompt, at little cost to the taxpayer, an influx of money into organisations that reduce the burden on the government to undertake important social tasks. Those who see tax breaks for donors as a luxury in a country with massive needs and limited funds might be surprised by how much we might save by offering tax breaks for non-profit donors.
Donor tax breaks could also do much to enhance our prospects of becoming a free, caring society. It is often non-profit organisations that place issues on the public agenda that we need to address but would otherwise ignore. And many activities that ensure that the weak enjoy some protection are possible only because non-profits undertake them.
This may explain why, although there is no great national campaign for tax incentives for giving to non-profits, the government has made a gesture in this direction. Concessions were made in the 2000 budget and draft regulations implementing them have just been circulated for public comment.
Until now, only giving to formal educational institutions has entitled donors to tax breaks; now the government proposes to extend them to those who care for abandoned, abused or orphaned children in a home or for the destitute aged, and who help prevent HIV or care for those impoverished by Aids. The range of education activities for which donors will receive concessions will be broadened.
For those of us who insist that tax breaks for donors are essential if we are to foster a non-profit sector that can fight for our diverse interests and provide essential services to society, this is an important symbolic breakthrough: it shows that the government does recognise the need to support non-profit activity.
But the changes are inadequate and could take us backward.
Far more non-profit activities are excluded from the concessions than are included. Most non-profit organisations therefore lack a vital “carrot” that might make them more attractive to donors. There are also strange anomalies. Research the task of the non-profit at which this author works is entitled to tax breaks if conducted at a university, but not if researchers are off campus. How can an activity be useful to society if it happens at a university, useless if it does not?
Another anomaly is that the government is currently circulating a long list of activities for which non-profits will be entitled to exemptions from income tax. While the exemptions for donors are tightly restricted, assuming that only activities absolutely essential to achieving development goals should be helped, this list includes activities such as promoting mutual tolerance and “engaging in philosophical activities”. Why this generous approach to income tax breaks, but a narrow one to donors?
The danger in granting selective exemptions is that it might make survival prospects far worse for organisations not on the list. If the current concessions offer incentives for donations to organisations that care for those living with Aids, but not to those who campaign for better treatment for them, and the effect is to starve the latter of funds, we could be worse off as a society.
That said, the fact that the government has acknowledged the need to encourage giving to some non-profit activities means that the goal of next week’s conference may be more attainable than it seems the principle has been established and the argument will concern detail.
But that argument may be long and difficult as some try to ensure that the revenue service hangs on to every rand (even if doing so means losing government income), as some insist that it is not the government’s job to encourage non-profit activity (although the same people are often enthusiastic about encouraging, for example, exporters) and as others argue that the government should do nothing to encourage independent and critical organisations, even though the freedom that our Constitution proclaims cannot be achieved without them.
Next week’s conference may give an insight into whether the latest concessions are the last or the beginning of a process in which we will eventually provide incentives for giving to all those who work in the hope of improving society.
Steven Friedman is director of the Centre for Policy Studies, a non-profit research organisation, and a member of the Non Profit Partnership’s working group on tax