Private Philanthropy

South Africa: The Katz Report – Finally a Reality

The International Journal
of Not-for-Profit Law

Volume 1, Issue 3, March 1999

While Sangoco has welcomed the Katz Commission’s recent recommendations (501 KB) on changes to the tax structure, the Coalition has cautioned that they do not go far enough to meet the sector’s needs.

Under the current legislation only a very narrow band of organisations qualify for any form of exemptions or deductions. Similarly, donors are only eligible to claim deductions when funding those with Sections 18A status, namely tertiary educational institutions. Research has shown that there is a high correlation’s between tax reform and increased levels of corporate and private donations given to the NGO Sector.

The long-awaited Katz Commission Report is taking the first major steps to correct this imbalance. By far the Report’s most far-reaching recommendation is to widen the criteria of eligible public benefit organisations. Below is a list of types of NPOs which, provided they fulfil certain criteria, will be eligible for a range of tax exemptions. The list is fully comprehensive.

  • Charity and altruism;
  • Upliftment and development;
  • Welfare and social services;
  • Religion philosophy and belief;
  • Politics, public policy and advocacy;
  • Education, including adult, civic, and public education;
  • Job training, skills transfer, and the promotion of entrepreneurial skills for the benefit of unemployed ad indigent persons;
  • Recreation and sports;
  • Culture and arts;
  • Physical, mental and psychological health (including prevention, treatment, rehabilitation and support);
  • The provision of legal, medical and other professional services for the benefit of indigent persons, either free of charge or at a charge which is significantly less that that normally levies;
  • International organisations directed to the promotion of peace, friendship, cultural exchange and other beneficial purposes;
  • Museums of a scientific, cultural and historical nature; and
  • Institutions for the advancement of science.

One criterion will be registration under the NPO Act and many of the other clauses call for standards of accountability and transparency supporting the mandate of the Act itself. There are, however, restrictions which Sangoco still considers too severe or inappropriate for many organisations.

Trading Income

Sangoco’s submission called for full tax exemption on both ‘related’ and ‘unrelated’ trading income. Related income refers to activities that fall directly within the mandate of the organisation i.e. fees for services or membership or interest made on income. Tax-free income could make a considerable contribution towards an organisation’s attempt to become self-sustainable both in terms of fundraising and charging for services. The report proposes that only ‘one-half of gross receipts (including donations) will be free of tax. The balance will be charged at the normal rate. Sangoco will continue to call for complete exemption.

One of the most important aspects for this campaign is to encourage increased donations from donors and the local corporate sector. In a recent survey on philanthropic giving, undertaken by Georgina Jaffee, donors revealed that ‘tax deductions are a major incentive, lowering the price of giving and therefore encouraging a higher level of donations.’ Despite this, and the obvious need to provide further incentives to companies currently not contributing to development, the report has stuck to a 5% deduction on taxable income across the board. This figure remains very low especially when compared to many other countries. For example, in the US it is as high as 50 per cent. Sangoco will continue to urge that both company and individual giving levels be increased to 10%.

Much of the nervousness to raise the levels stems from deep-rooted concerns as to the loss of money to the fiscus. Although many international examples have shown that any loss becomes insignificant when compared to the gains made as increased funds flow towards social development, the Commission remains unconvinced. The report calls for an ‘efficient computer system to be introduced to calculate the cost of such deductions.’ Sangoco supports this strongly, anticipating that evidence of the limited loss of revenue to the State will encourage the Department of Finance to re-assess its position.

The far-reaching effects that these changes, if approved, could have on the state of NGOs in this country cannot be stressed enough. It will impact upon every single organisation and their ability to remain financially sustainable. Sangoco urges all organisations to support the call for tax reform and to work with us to ensure that by the next budget speech the tax environment will more favourable and supportive of the important work that NPOs do.

In the next issue of NGO matters there will be full details of how you can join the campaign for Tax reform. Sangoco is currently working on a full response to the report.

If you would like to obtain a copy of the report please contact Laura Maxwell-Stuart at the Sangoco offices, E-mail laurams@sangoco.org.za or visit https://www.sars.gov.za.

The South African National NGO Coalition (SANGOCO) is a rapidly growing umbrella body of South African NGOs. The Coalition was formed in August 1995 to co-ordinate NGO input into the Reconstruction and Development Programme. It consists of provincial and sectoral affiliates, working in a wide range of development fields including land, health, urban and rural development.