Gonzalo Polanco, director of the Center for Tax Studies of the U. de Chile
Gonzalo polanco
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The Ministry of Finance is studying a new regulation that regulates donations, in favor of non-profit organizations (NPOs). The so-called “civil society organizations” often fulfill functions that citizens have first handed over to the State, but which the State cannot carry out in a complete, effective, timely manner or due to other limitations.
In order to remedy these problems and stimulate the involvement of individuals in social problems, many countries promote donations to NPOs. Chile is not the exception. History shows that, over the years, tax benefits have been delivered to the donors who help fund these entities. However, over time the system introduced new regulations, which has made it more complex. A cursory review shows the existence of more than 50 different provisions that regulate donations for different purposes differently, making their use by donors and grantees very difficult. For this reason, there is a broad consensus on the need to enact a single law on the matter.
When it comes to new regulation and incentives, several points appear on the horizon. A relevant question is to decide to what extent to delegate responsibilities that correspond to the State to these organizations; if there should be state incentives for its operation; if the State should open a range of possibilities for individuals to decide to which area to donate, or if, on the contrary, benefits will only be recognized to those who choose certain purposes, such as education or health. From the side of public finances, a crucial factor is tax incentives, which correspond to expenses. Therefore, the question arises whether the State should renounce resources that correspond to it through taxes, to encourage the activities of these organizations.
Our legislation, to some extent, has resolved these doubts in relation to donations made by legal entities. Companies that carry out accounting processes can consider donated amounts as an expense or even as a credit. But there is still much to discuss about the incentives that natural persons have to make donations. It is worth asking why a similar provision cannot exist in the case of non-accounting natural person taxpayers.
Although the donations made by natural persons contribute, as a whole, a lower collection of money – as revealed, for example, by a study by the Center for Public Policies of the Catholic University, which indicates that in 2017, the 84% of the amount of donations registered with the SII corresponded to companies and only 10% to natural persons – these can be very relevant from another perspective: the expert services provided. The contribution made by an experienced psychologist, lawyer or doctor to one of these organizations can be even higher than a monetary donation.
For this reason, it is essential to discuss the existence of a tax benefit for the provision of services or “donation of hours” of work and not for the delivery of money or goods. There are good reasons to think that society should recognize and encourage the commitment of those who spend their free time helping the community. In addition to contributing to the creation of the social fabric, in a country that is recognized as segregated, those who dedicate hours to charitable works are giving part of the most valuable and scarce asset that we have: time. So, in part, donors should be able to compensate, at a minimum, for the expenses they incur, for example, on locomotion.
An appropriate way to implement this benefit would be through the creation of a system in which NPOs certify the number of volunteer hours in a year. In this way, the hours could be valued for the purposes of a tax reduction, when reported to the SII.
As in any proposal, safeguards should be considered to avoid abuse. In this case, the valuation of the hours should be carried out by an independent body and the NPOs accept, as a counterpart, that there is full transparency about their forms of financing and the destination of the monies that enter their coffers. For this, it is necessary to develop a public registry of the organizations that are likely to be beneficiaries, in which only entities that ensure an external audit can be included, so that strong sanctions are applied in case of abuse.
This is an excellent opportunity for our tax system to become simpler and look for much more than just collecting.
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