Bipartisan legislation considers deductions on donations

Bipartisan lawmakers are pushing to pass legislation to encourage donations, which has decreased among charity groups since tax benefits for donors were slashed.

Mr. Kim, a salaryman in his 40s, has for years donated to the Community Chest of Korea, but he stopped this year.

He made the decision after he saw how drastically his deductions for donations had decreased in 2014 as he reviewed his year-end tax settlement.

The fund-raising organization Community Chest revealed Wednesday that it has seen a 42 percent decrease in donors this year compared to last, following the reduction in tax exemptions on donations.

Between January and September, 64,396 people donated to the organization, compared with 112,502 in the same period last year.

The controversy that erupted earlier this year over changes in the tax code further dampened incentives to donate, particularly with most people seeing reductions in their tax returns.

Holt Children’s Services Korea saw a 12.3 percent drop in funds donated last year, while World Vision Korea failed to find large-sum contributors, increasing worries that the shortage could cause setbacks in its plans to expand support for children.

In 2013, Holt collected 8.77 billion won ($7.75 million) in donations; that decreased by more than a billion won to 7.69 billion won last year.

“After tax deductions were slashed from reforms in the tax system, it seems that donations decreased,” said Choi Heung-jin, who manages contributions at Holt.

Until 2013, the biggest donors, or the top 38 percent, enjoyed deductions of up to 41.8 percent. A donor who gave 10 billion won, for instance, would have received 4.18 billion won in return.

But due to a revision in the Restriction of Tax Reduction and Exemption Act, a cap on deductions for donations was implemented. For donations less than 30 million won, the cap was reduced to 15 percent, and for donations over 30 million won, it was lowered to 25 percent.

However, the government has maintained the position that paying taxes is the greatest donation.

“If tax benefits for just donations are increased, than the balance with other deductible items will be broken,” said Moon Chang-yong, the deputy finance minister for tax and customs. “Last year, donations amounting to over 10 million won did not decrease.”

However, these kinds of large-sum donations were made before people checked their year-end tax settlements.

The Korean Association of Public Finance forecast that following the tax law revision, there will be an annual increase in tax revenue of 307.5 billion won, but a drop in donations of 2.376 trillion won.

And lawmakers across the aisle are working on legislation to counter this trend.

There are three bills related to reforming the income tax law currently submitted to the National Assembly’s Strategy and Finance Committee. Ruling Saenuri Party Reps. Jeong Kab-yoon and Na Kyung-won, and opposition New Politics Alliance for Democracy (NPAD) Rep. Kim Kwan-young co-sponsored the legislation that has been in the works since March, though there has been little movement over the past several months.

The revision pushed by Rep. Na calls for the base tax deduction rate for donations to be raised from the current 15 percent to 25 percent and for large donations, from the current 25 percent to 40 percent. She is also pushing for the amount considered a large donation to be reduced from the current 30 million won to 5 million won annually.

The Saenuri Party’s leadership promised it would actively review the draft bill on Thursday.

“I was surprised when I saw the [JoongAng Ilbo] report,” said Saenuri Party floor leader Won Yoo-chul. “I will discuss it with our chief policy maker, Kim Jung-hoon, and make sure that the National Assembly will not hold back donations.”

“There is a need for reforming the tax system to increase donation funds,” Kim added, reiterating that the ruling and opposition parties would discuss reforming the related tax law.

The NPAD has also said it will go forward with revising the tax law.

“In order to boost a culture of giving, we can review increasing the tax deduction rate,” said Choi Jae-cheon, chairman of the NPAD’s Policy Committee.

“New legislation has to be passed because the government’s current tax policy is hampering the spirit of donating,” said Min Byeong-du, who heads the Institute for Democracy and Policies.

NPAD Rep. Won Hye-young, a four-term lawmaker, is known in the National Assembly for his generous donations.

He successfully launched a fresh organic produce company, Pulmuone, in the 1980s before entering politics. He also sold his stocks, worth some 2.1 billion won, and founded the Bucheon Foundation, a scholarship charity. To date, the foundation has provided 1 billion won in scholarships to 2,000 students.

“The drive to donate should not be dampened for the sake of increasing taxes,” Won said. “The government has to change its perception and recognize that donations are different from general consumer expenditures. We need to note how developed nations significantly slash taxes in relation to donations in order to inspire taxpayers’ desire to donate.”

BY SPECIAL REPORTING TEAM [kim.sarah@joongang.co.kr]