Taxes damaging charity
It is shameful that reduced tax incentives for donations, following changes in the tax code in 2013, have hurt charities. According to the Community Chest of Korea, the number of regular donators plunged by 42 percent to 64,396 in the first nine months of this year from 112,502 in the same period last year. Non-government organizations, arts sector, universities and hospitals are under a financial squeeze due to the sharp fall in donations. The government, which should be encouraging charity, has dampened the activity through a short-sighted tax code change.
The government cut tax incentives for annual donations in order to raise more tax funds for welfare policies. But welfare benefits have actually been reduced because of a drop in various donations to poor and weak classes. The Korean Association of Public Finance estimated that reduced tax deductions in donations would increase tax revenue by 305.7 billion won ($269.8 million) but shave the total to charities by 2.04 trillion won. The cutback in deductions on donations will end up hurting charities more than aiding public finance.
The tax code change has thrown cold water on budding philanthropic activities. Advanced countries do not tax donations. Most of the members of the Organization for Economic Cooperation and Development have increased tax returns on donations to boost charity activities.
The government maintains it can expand welfare programs if tax revenue increases with or without donations. But the government cannot tend to and finance all the necessary needs in society. Taxes cannot replace charity.
The government must differentiate its role and that of non-profit organizations. Instead of trying to take full responsibility for social welfare like European countries, Korea should instead consider the U.S. model that has different roles for the public and private funding.
Donations take up a mere 0.9 percent of its gross domestic product, just half of the U.S.’ charity is too scant for its economic size. Donations can be a barometer of a society’s maturity and level of stability. Taxes must be designed to encourage not discourage charity activities. The National Assembly must revise the income tax law regarding donations. The government must be aware that it is hard to rekindle a charitable culture once it is quenched. Sharing is the light that can warm shadowy and colder parts of society.
JoongAng Ilbo, Oct. 17, Page 26