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Non-profit organisations in South Africa reaping the benefits of the Income Tax Campaign

Tessa Brewis and Ricardo Wyngaard -The Non-Profit Consortium
December 2006

In November this year an Amendment Bill was pass ed by Parliament in South Africa that will
bring about significant improvements to t he tax system for non-profit organisations.
1 The
amendments are viewed as yet another victory for the non-profit sector, as well as an
affirmation of the importance of the ongoing Tax Campaign.
The Tax Campaign, which began in the early 1990’s yielded its first major results in 2001 with
a complete overhaul of the system of taxa tion for non-profits and the introduction of the
concept of public benefit organisations (PBOs) into the tax legislation. Since then, the Non-
profit Consortium, with the support of key partn ers like the Legal Resources Centre, the South
African Council of Churches, the Charities Aid Foundation Southern Africa and more recently
the International Centre for Not-for-Profit Law, has continued to campaign for the further
refinement and improved the implementation of the law.
The budget tax proposals announced by the Mini ster of Finance in February 2006 signified a
triumph for persistent advocacy, since they addr essed many of the issues raised by NPC in
its submissions and meetings with revenue o fficials. The budget tax proposals placed the
following items on the agenda for the year: t he lists of tax exempt public benefit activities
would be refined and extended; the rules for permissible investments for PBOs would be
relaxed; the statutory tax rates for the taxable tr ading activities of all PBOs irrespective of their
legal form would be aligned; the dual registration process would be streamlined and tax
benefits would be extended to foreign PBOs operating in South Africa.

The draft version of the bill published in September 2006 reflected the items identified by the
Minister of Finance and concerns raised by the NPC in past submissions. Although the
majority of proposals contained in the draft b ill were beneficial to the non-profit sector, a
number of shortcomings were identified. For exam ple, in the initial proposal the new aligned
tax rates would have meant a 5% increase for the majority of organisations
2, and complicated
rules were proposed to prevent PBOs investin g in foreign investments. The Non-Profit
Consortium responded by making a joint submission together with the Legal Resources
Centre and Douglas and Velcich, to the Finance Portfolio Committee, and also arranging an
1 The Revenue Laws Amendment Bill (33 of 2006) (the Bill) that was released on 03 November 2006 2 PBOs exceeding the trading limitations contained in the Income Tax Act are required to pay tax on
the income generated from such excessive trading.

urgent meeting between civil society stakeholders as the revenue officials. The final version of
the amendments indicated that the majority of NPCs recommendations had been included
and that the inventions had been successful.
The final changes to the legislation, which will come into operation early next year, include the
following major advances:
• organisations will no longer be required to register as Non-profit Organisations in
terms of the Non-profit Organisations Act of 1997, as a condition for registration as
PBOs. This will simplify the regulatory burden for many organisations;
• the statutory tax rates for the taxable trading ac tivities of all PBOs irrespective of
their legal form will be 29%;
• there are no restrictions on investments made by PBOs;
• tax exemption will be granted to foreig n legal entities operating in South Africa, on
condition that they qualify for tax exemption in the country in which they are
established.
The ongoing interaction between civil society stakeholders and the revenue officials has
yielded many positive outcomes. Over the years the relationship has developed into one of
mutual assistance and respect, resulting in cons istent improvements to the tax system for
non-profits. Already on the agenda for next year is relief for small organisations and a
possibility of a tax amnesty for NPOs as well as an increase in tax benefits for donors.