Barry Streek
Eugene Saldanah, director of the Non-Profit Partnership, opened the international conference on tax and the non-profit sector this week by dressing organisations down with a warning that they have to administer their finances efficiently if they are to be sustainable. “We must dispel the myth and nonsense that the sector is lazy, incoherent and provides protected employment. If non-profit organisations are to manage their finances efficiently, the people in them have to be able to read a balance sheet,” Saldanah told delegates at the Johannesburg conference. He called on organisations to make productive use of assets, to generate income, design creative fund-raising strategies, implement efficient financial management, create an enabling and legal environment, and portray a professional image. Saldanah’s sentiments were echoed by Minister of Finance Trevor Manuel when he detailed tax concessions to the non-profit sector. He warned against the exploitation of tax incentives for non-profit organisations by the wealthy, the powerful and tax planners for their own interests and said the government had opted for a policy of “gradualism” with regard to tax reforms to assist NGOs.
The “gradualist” approach to tax reforms to help the non-profit sector is intended to limit the misuse of the changes to benefit individuals rather than people in need. Manuel also called for strong partnerships to be built between the government and the non-profit sector to deliver to people in need. He stopped short of criticising his colleagues, such as Minister of Trade and Industry Alec Erwin, directly. However, he felt “they should help in making more money available to the non-profit partnerships”. Richard Rosenthal, one of the lawyers involved in negotiations with the South African Revenue Service about definitions of public benefit organisations for inclusion in the proposed changes to the Income Tax Act, said the current proposals need refinement and even correction in certain respects. But it is “clear that the new dispensation provides the basis for a quantum shift in the fiscal affairs of this vitally important sector of any democratic society”. While Manuel’s presence at the conference and the views expressed indicate a relatively healthy working relationship between the treasury and the non-profit sector, it is clear that many NGOs believe the South African Revenue Service is being too cautious and that the proposed changes do not go far enough. Manuel warned NGOs that they should prepare for long negotiations over tax reforms, saying that “some of us” are experienced in them, having worn down the apartheid state during negotiations because “they couldn’t stay awake long enough”. He cited Mitchells Plain as a case in point in structuring government-NGO partnerships, where “the bottom has dropped out of what should be a community” and there is no dispute about the role of NGOs reaching out into the lives of people. “We sometimes talk past each other, but let us engage in a process where we hear each other,” Manuel said. He said the treasury acknowledges that non-profit organisations are among the central institutions for educational, environmental, social, cultural and political or democratic activities in many countries. “South Africa’s own history suggests that non-profit organisations can play a pivotal role in the socio-economic development and upliftment of communities … During apartheid days the non-profit sec- tor was an effective instrument to address injustices.” The international conference came shortly after non-profit organisations in South Africa won a significant victory in the battle for a more satisfactory tax climate. The government has decided that the new capital gains tax provisions will not apply to any public benefit organisation as defined in the Income Tax Act. “This expanded exemption should exempt most donations on death and it needs to be remembered that the majority of charitable donations occur, on the basis of hard evidence, on death,” Manuel told the conference.
He added that the new exemption would apply to all public benefit organisations, even if those donations were not tax deductible. Manuel said new capital gains legislation would be tabled soon and the policy changes were prompted by the portfolio committee on finance’s hearings on February 16. Taxation of charitable donations under the capital gains tax proposals had been identified in public hearings as a step backward for public-benefit organisations, because donations could previously be made tax-free. However, in terms of the revised capital gains tax draft, the new provisions will not apply to charitable donations made to any public benefit organisation as outlined in terms of the provisions of the new section 30 of the Income Tax Act.
l Manuel announced that the R916-million Umsobomvu Fund, to which a CEO was appointed in January, will now fall under the Department of Labour, while the National Development Agency will fall under the Department of Social Development.