Charities squawk over onerous deductions law

A controversial law implemented this year that limits tax deductions on charitable donations has been protested by 205 nonprofit organizations, including the humanitarian group Good Neighbors.

The Restriction of Tax Reduction and Exemption Act caps tax deductions in seven areas including charitable donations at 25 million won ($22,091) starting from last January.

Previously, any amount donated to foundations, charities, churches and other causes was tax-exempt.

The National Council of NPO, Korea, which represents 31 nonprofit organizations, said it sent a petition to the National Assembly requesting a revision of the deduction cap, which it says will dampen people’s charitable donations.

The council said, “We have submitted to the National Assembly a statement requesting the speedy revision of the Restriction of Tax Reduction and Exemption Act.”

Under the law, all the expenses in seven areas - including education and insurance expenses and medical fees - are added together to determine the amount that is tax deductible. Donations are calculated last. If the individual’s expenses reach the 25 million won level, any additional expenses or donations are not tax deductible.

According to the Ministry of Strategy and Finance, the increase in tax collections due to the revised law this year will be an estimated 90 billion won.

Donations given by individuals in 2011 totaled 7 trillion won. The new law could have an impact on some 4 trillion won in donations, the ministry calculated.

Last month, the National Council of NPO held a board of directors meeting to discuss the issue.

The National Council of NPO was founded in 2009 and includes members such as Unicef, the Child Fund and Save the Children.

“At that time, we received phone calls from our member organizations asking, ‘Why is the council sitting and doing nothing?’?” said the council’s director Yi Il-ha, president of Good Neighbors International. “We thought that it was not right to see the pure intentions of donors being nipped in the bud by a change in the tax law.”

The council, with the support of 205 groups including its 31 member organizations, submitted the petition to National Assembly Wednesday, requesting donations to be excluded from the deduction cap.

The NPO council plans to hold an open forum later this month at the Korea Press Center. “Not a lot of people know about the limitations in tax-free donations under the law,” Yi said, “And we want to proactively spread awareness on the issue.”

By Jang Joo-young [sarahkim@joongang.co.kr]