The International Journal of Not-for-Profit
Law - Volume 2, Issue 1
A quarterly publication from The
International Center for Not-for-Profit Law
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Working
Group No.4 -
Government Subventions and Tax Benefits Government
Grants and Tax Benefits Working
Group No. 4 worked to locate new devices for obtaining government grants, as well
as finding new devices for people to fund NGO activities. General objective: To find a common denominator of
basic principles to apply to tax benefits in countries of the region.
Distinctions: NGOs and the environment - they are working
(subject of domestic legislation) - contrary to international organizations How does the European status of NGO work here?
There is no harmonisation of legislation in the EU either. 1. Tax on surplus Income tax is defined as tax on an organisation’s
excess money at the end of the year or as the difference of revenues over
expenditures. Opinion 1: If income tax is spent for public
benefit then there is no tax paid. Opinion 2: The non-distributing factor or
characteristic of any NGO - if money is kept by the organisation for later use,
there must be a tax exemption. If there is a “healthy" surplus, a
"financial plan for sustainability" is necessary. In this case, a tax
should not be paid so there will be an opportunity for the NGO to survive. In a non-profit organization we have to group the
organizations and then we list our expenses. If there is a separate commercial
activity, it must be accounted for separately. Whatever profit occurs goes to the NGO. It is
convenient for an NGO to own a separate company to market economic activities
purposes. After taxation is applied, the revenues are put to the NGO. Foundations are limited from engaging in economic
activities for historic reasons. Taxation makes a difference to the government:
State Receipts 500
Expenses 500 If the state
gives a grant it's 500 revenue, but the total state expenditure will be 600. 2. Related/
unrelated economic activities (legal and moral point). In some
cases it's the law that does or does not allow. If not, one has to have a system
for allocating the money. There is no use for the Law to go in details, but there
must be a reasonable allocation of related or non-related activities (for example,
number of staff employed). Paying even symbolically for NGO services means
creating a healthy relationship from a service point of view and improves
sustainability. Even if the tax rate is concessional, it still must be paid. 3. Government use of "national lottery"
revenue. UK lottery: The amount of money going to NGOs was
not conclusive. The lottery splits money to different sectors and every year is
different (one year might be arts, then the
environment, the disabled etc). 4. Tax on staff income Concerning taxation on staff and employees (taxation on
individuals) - they should be treated as any other
employees, and personal income tax should be the same. 5. Indirect taxes (VAT) If receipts do not reach a certain amount the
entity need not register for tax. This helps smaller NGOs or NGOs that are just
starting out. VAT is the most important one- the actual paying and collecting
VAT and the balance of the two, service tax etc. In Italy the VAT is zero rated
for NGOs that work in development aid in third world countries. There may be
different rates for NGOs in different countries (0 or smaller rate than the
regular one) and it depends on different contexts and situations. 6. Relief on donations (tax deduction) Donations are not seen as an exemption, but as a
deduction to corporations or individuals that give money to NGOs. It is
important to anticipate tax reduction for companies or individuals. In various
countries this is regulated in many different ways from taxable income -
countries have different incentives. Data presented on the source of money to NGOs: 48%
is from the government, 4-5% is from donations, 47% are the NGO fees. Unanswered dilemma: whether the government decides
to whom money is allocated. It is appropriate for the state to focus on priority
bases. Government subventions (support) Government subvention can be understood as:
government support (transfer of resources, provision of goods and services for
valuable consideration) as well as financial assistance, grants etc. Can be a
care contribution, general contribution or a contract for the project. Governments (and not only governments) are "projectizing"
their programs. Costs are less if NGOs do the job. There should be a
constructive dialogue with the government and grants should no longer be free. "Free" contributions vs. contracts Quality of services Slovakia: 1. More government contributions than
foreign sources; 2. Free grants more Lithuania: 1. More government grants- few international 2. Free grants Hungary. 1. Good government and international support 2. Good examples of contracts Macedonia: 1. International Bulgaria: 1. Very Romania: 1. International support only for sectors no clear government strategy 2. Government funding through variety of arrangements Conclusion: Government support should be targeted. General sectorial policy support should be present, but there should be clear policy and strategy. There should be a tendency to work more locally and less with international support. There must be a strategy of the state, but while created to be assisted with NGO input. lt would be better if there are more "contractual" relations of government vs. NGOs. |
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