In his 2000 budget speech the Minister of Finance, Trevor Manuel, indicated by means of the significant addition of section 30 to the Income Tax Act that the Government had heeded some prolonged and intensive lobbying by the large numbers of NGOs dealing with public benefit activities. Many of these had been around for years, but during the final years of the apartheid regime and well into the change to democratic rule even more had sprung up to address numerous needs in the community.
Their problem was that, with the end of apartheid, South Africa ceased to be the flavour of the month for many foreign donors, with the result that the NGOs found themselves financially strapped. They then sought assistance from the government by seeking tax incentives for donors to such entities. To make matters worse, many NGOs did not qualify for exemption as taxpayers under any of the exemptions afforded in the Act to certain non-profit-making bodies.
The only tax incentive in the Act had been in respect of donations to secondary and tertiary educational institutions, and even these were not generous. Individuals were entitled to deduct the greater of R500 or 5% of their taxable income, whereas for companies the deduction was 5% of taxable income. The latter provision meant that, if a company had sustained a loss for the year, it had no tax incentive to make a donation.
The introduction of section 30 has changed all that. It introduces the concept of the "public benefit organisation" ("PBO"), which is broadly defined as any organisation carrying out a public benefit activity as approved by the Minister. Essentially, a PBO must be a non-profit-making entity whose object is to achieve one of a number of aims approved by the Minister. It must be a section 21 (non-profit) company, or a trust, or an association of persons. If it qualifies, its income will be exempt from normal tax. In addition, donations to certain of such entities will be deductible by the donors. In this regard the deductible amount for all taxpayers is now the greater of R1 000 or 5% of taxable income.
The list of public benefit activities has now been finalised and published. These are divided into nine categories;
Welfare and humanitarian; health care; land and housing; education and development; religion, belief or philosophy; cultural; conservation, environment and animal welfare; research; and sport. Sub-headings in each category provide more detail and limitations. A common thread running through the list is the provision of facilities to indigent persons. Other obvious themes are environmental protection, health, guidance and counselling. A comprehensive list is available on the Revenue Service website www.sars.gov.za under the heading "What’s New?"
Only three of these categories enjoy the status that makes donations to them deductible for tax purposes, and this of course is the big prize for any NGO: welfare and humanitarian; health care; and education and development. It is evident that these three categories deal with the most fundamental range of societal needs.
It will be interesting to see to what extent the new provisions assist NGOs in their valuable activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).