ICTR believes that the practical means to achieve those aspirations during the current economic downturn is to refine taxation policy to promote socially beneficial activity and encourage a spirit of giving in the community.
Currently, charitable donations of €250 a year allow the grossed up amount of tax to be transferred to the charity, but only if the donation is from a PAYE taxpayer. Self-assessed taxpayers, which increasingly includes many PAYE taxpayers who also have some additional non-PAYE income, are allowed to treat the donations as a business expense that can be written off against tax.
The Commission on Taxation has made two recommendations in this regard: first, to drop the threshold level from €250 to €100, and second, that PAYE and the self-assessed be treated in the same fashion, with the tax rebate going to the charity.
We support this proposal on three grounds: it acknowledges the importance of average size donations, particularly in the context of recessionary pressures on those who wish to give, it allows significantly more charities to benefit from the donations scheme, and it greatly reduces the administrative burden on charities and the Revenue Commissioners resulting from the dual approach on the current system of charitable reliefs.
The commission, however, also recommended applying tax reliefs for charities at the standard rate rather than at the marginal rate. We do not support this proposal, for the following three reasons. If donations from all tax payers are to be treated the same, that is, that the benefit goes to the charity not the donor, then standardising charitable donations relief would not produce greater equity — it would, in fact, very significantly reduce income to the charitable sector. A reduction to the standard rate would discourage independent fund-raising and, ultimately, increase reliance of charities, and those they serve and assist, on central government funding. Any tax saving to Revenue would be minuscule compared to the financial impact on charities and those most in need.
We are aware of proposals to introduce a new composite rate of tax relief for pensions. In the event of a move away from the marginal rate, ICTR believes charitable donations should also be subject to this composite rate tax relief.
Under the broad heading of philanthropy, the Commission on Taxation report recommended replacing existing limits on tax relief on philanthropic donations, including donations applicable under the section 485C of the Finance Act 2006 with a straightforward ceiling of €500,000 under the donations scheme itself. This proposal recognises the key difference between tax relief to private charitable giving to promote the public good and private investment to promote private gain. ICTR supports the work of Philanthropy Ireland in this regard and the principle of decoupling philanthropic donations from other tax reliefs. We believe that the appropriate cap on tax relief for charitable donations should be €1 million. Larger endowments, not appropriately addressed for tax purposes under these proposals, should be assessed and approved on a case-by-case basis.
The Commission on Taxation did not address the overall issue of VAT to any significant degree. ICTR, however, wishes to address this issue as current VAT regulations severely impact on the work of charities. Charities cannot claim VAT back in the same way that a business can. As a consequence, the sector effectively pays a levy on all independent fundraising — through VAT on everything from printing of leaflets to booking hotels for fundraising events.
In 2005, EU Commissioner for Taxation and Customs, Mr. Laszlo Kovacs, stated that any scheme designed to relieve the VAT burden for charitable activities can be regarded as compatible with EU legislation if it is clearly separated from the VAT system, that under such a scheme the tax is collected in the first place and then the Government chooses to allocate it back to the bodies from which it has been collected, and that the decision to set up such a refund mechanism is strictly a national budgetary issue. Since then, the Government of Denmark, a country with a population and charity structure similar to that of Ireland, has implemented a compensation scheme for charities for VAT paid by them. This scheme is structured to incentivise fund-raising on the part of charities in Denmark in order to reduce the impact on central exchequer funding. The ICTR proposes that the Department of Finance should begin a process of consultation with the charity sector in order to discuss the practicalities and details of introducing such a scheme in Ireland. Said scheme might draw upon the successful model that has been in place in Denmark for the past two years.
We thank members for inviting us to come before them and for listening to our presentation. We will be happy to respond to any comments or questions they may wish to make or pose.