Percentage Legislation in Central and Eastern Europe: - a mechanism for philanthropy? Nilda Bullain European Center for Not-for-Profit Law Conference on.

Percentage Legislation Percentage Legislation in Central and Eastern Europe:in Central and Eastern Europe:- - a mechanism for philanthropy?a mechanism for philanthropy?

Nilda BullainEuropean Center for Not-for-Profit

Law

Conference on Corporate Social Responsibility: A New Model of

Partnerships

2 July 2008, Tbilisi

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Central idea of % mechanism

Taxpayer decides whether to designate portion of tax paid to

entitled organization.

* tax allocation* (indirect) government support

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% laws around the region Historical context

Germany, Spain, Italy The Percentage Group

the inventor: Hungary (1996) Slovakia (2001) Lithuania (2002) Poland (2003) Romania (2003)

Initiatives: Czech Republic, Ukraine, Armenia Abandoned idea: Georgia, Macedonia

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Issues to be considered Who can designate? How much? To how many? To whom, what are the criteria? How? When? What for? Reporting, accountability? Invalid designations? Dispute settlement…

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Who ?(taxpayers)

How much?To how many

recipients?

HU individuals 1 +1% 1+1

SK individuals& companies

2% *2%

1- many

Lit individuals 2% many

PL individuals 2% many

RO individuals 2% 1

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Recipients To whom?

All qualifying NGOs (HU, SK – registered on list) PBOs (Lit, PL) Church/state objective, public institutions

Other criteria: Prior existence, pre-registration, PB purposes,

public debt, territory What are resources used for?

Mainly unrestricted funds

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And how? Through Tax Returns Directly on account of beneficiary

(Poland) – proved ineffective so amended Reporting/Accountability Issues to be considered:

Administrative burden (time +money) Anonymity Directly or through employers

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Legal nature and effects of the percentage mechanism

Tax allocation mechanism

Citizens control tax spending directly

Indirect government support

Beneficiaries (NGOs) have access to increased resources

Transitional philanthropy

Encourages philanthropic activity

MULTIFUNCTIONAL!

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Policy rationales for the 1% law

Taxation self-determination a tool to strengthen democratic

system and values (taxpayer control of public spending)

Civil society developmentIncreasing resources of the sectorRaising awareness in the general

publicStrengthening communication skills

and outreach

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Rationales for the 1% law

Developing a philanthropic culture “first step” of making people think

why they would want to support an NGO

Government outsourcing decentralized and de-politicized

government support to activities that benefit the public

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Potential impact of the 1% law

Policy rationale Potential for success

Taxation self-determination

Good (with some limitations)

Civil society development

High (but much depends on implementation)

Development of philanthropy

Questionable (likely but so far no visible impact)

Government outsourcing

Low (not appropriate mechanism)

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The advantages…

NGOs Linking to community; NGO communication skills; Awareness about civil society issues; Pool of resources for unrestricted funds; A revenue for local/small NGOs; Higher potential for bigger NGOs; Market based - healthy competition;

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The advantages, cont’d. Taxpayers

Decision on how % of public money is spent; Awareness about how public money is spent; Awareness about civil society issues and why

to support.

State Decentralized/de-politicized government

support; Probably not costly; To “sweeten bitter pill of taxation” ; NGOs give part back through taxes.

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Objectives revisited: Resources?

Hungary Around 35-40% of taxpayers; 0.8% of sector revenue; Around 43% of NGOs receive (and bigger NGOs). In 2005: 6.9 billion Fts.

Slovakia 1st year 34% of taxpayers; 2nd: 42% (i), 75%(c). In 2006: 14.432.772 USD (individuals), 29.261.585

USD (corporations) 21% of all NGOs, or 99.8% of all eligible

Poland: 3.6% from tax payers; In 2005: 22,038,733 USD. around 8% of all NGOs are eligible, no data how many

received

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Objectives revisited: Philanthropic Culture?

Unidentified effect on traditional philanthropy;

Lithuania and Slovakia: abolished tax incentives;

Anonymity of declarations a problem.

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The challenges Is it a just mechanism?

Who can give, who can receive (competition w others)?

Limited resource: % of the cake always the same.

How much you invest, how much you get? Administration, complexity vs. resources.

Is it creating “classes” of NGOs? Is it enhancing, delaying or substituting

development of philanthropic culture? Anonymity, donor reflex.

What is the effect on other tax incentives?

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So is it a form of philanthropy?

A classic definition of philanthropy: Voluntary private giving for public purposes.

Percentage idea:

Taxpayer decides … to designate % of tax paid to organization.

“TRANSITIONAL OR GENETICALLY MODIFIED PHILANTHROPY”

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An incentive for philanthropy? Incentives for philanthropy:

Usually tax deductions and tax credits.Tax incentive involves an economic

benefit to the taxpayer.Novel forms: government aided

philanthropy, such as the Gift Aid system in the UK.

No economic consequence to the donor (+/-).

Government encourages private giving by increasing the value of the gift from public budget.

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An incentive for philanthropy?

Percentage designation not an incentive for philanthropy in the “law dictionary” sense.

However, may be considered an “incentive” in the broad understanding of the word:The opportunity itself encourages

people to act (direct resources to NGOs).

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And a mechanism for philanthropy? Has the potential in transitional

societies…

But if to be adopted, should be based on: analysis of third sector analysis of existing legal incentives analysis of current philanthropic culture careful review and selection of

implementation options cross-sectoral cooperation in drafting

And it should be implemented in combination

with traditional incentives!

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For more information:

www.onepercent.hu

www.jedenprocent.pl

www.rozhodni.sk

www.labdara-parama.lt

www.unulasuta.ro

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Thank you!

For more information, visit www.ecnl.org.hu