August 15, 2004

PERCENTAGE LAWS: TRANSITION TO PHILANTHROPY

 

Marianna Török

Do the percentage laws adopted in Hungary, Slovakia, Lithuania, Poland and mostly recently Romania promote genuine philanthropy? What opportunities and threats do such laws, which allow individuals to allocate a portion of their previous year's paid personal income tax to an eligible NGO of their choice, present? These and many other questions were debated by 160 participants from over 20 countries at the Percentage Philanthropy Conference on January 19-20, 2004 organised by the Nonprofit Information and Training Centre (NIOK) in Budapest. Many at the conference agreed percentage laws offer exciting new possibilities to the NGO sector in this region. A much-debated question is to what extent such laws can promote a transition to private philanthropy. What is clear is that percentage laws need to be part of a bigger toolbox of income-generating measures for NGOs, and their introduction should not be in exchange for existing incentives to stimulate giving or reductions in state support.

A Chain Reaction

Hungary's so-called 1% Law, adopted in 1996, sparked a chain reaction with several other countries in Central and Eastern Europe adopting percentage laws in different forms and with varying criteria. In Hungary and Slovakia, around one-third of tax-paying citizens make use of the opportunity to allocate a portion of their income tax to a cause they consider worthy. The Percentage Philanthropy Project, launched in April 2003, has aimed to generate critical feedback to countries where percentage laws exist while providing information and assistance to those that are interested in considering similar legislation. The project has coincided with many new developments: in 2003 alone there were two new countries - Poland and Romania - that joined the "Percentage Club"; Slovakia made major adjustments to its percentage system raising the percentage level of transferable paid tax to 2% from both individual taxpayers and, uniquely in the region, companies; Hungary added a completely new element to its 1% scheme in the form of a National Civil Fund, and Lithuania geared up for the launch of its "2% for charity" facility in 2004.

Percentage Law Study

A comprehensive study on the experience and practice of the percentage laws in Hungary, Slovakia, Lithuania and Poland was presented at the Percentage Philanthropy Conference by the key players involved. Romania's brand-new 1% provision, due to start operating in 2005, was also introduced.

Arranged in seven chapters, the study on Percentage Philanthropy (www.onepercent.hu) describes the origins and nature of this exciting experiment, the processes that have led to the spread of such laws, the types of legislation involved, how procedures work in practice, the complementary measures undertaken by NGOs to publicise the opportunity taxpayers have, and the results achieved so far.

Percentage laws offer several attractive solutions to addressing challenges facing post-communist countries. Among other results, they:
  • give citizens a direct say in how a portion of their income tax is used, and decentralise decision-making on the allocation of state revenues
  • offer people in the low-income countries of this region a means of giving to charitable causes at little or no extra cost to themselves
  • raise public interest in supporting NGOs with the result that the public profile of NGOs and the work they do has noticeably increased
  • are a welcome new source of income to NGOs, though the revenue generated for the overall NGO sector income is very limited
  • provide a legitimacy measurement or "public acceptance test" for NGOs
  • may function as "schools" of private giving and social responsibility (a much-debated argument)
  • develop marketing know-how among NGOs
  • highlight transparency issues for NGOs and tax authorities, and may give governments that accept such laws a positive image.


Talking Points

The rich variety of NGOs, government officials, MPs, journalists, donors and researchers present at the conference ignited very lively conference proceedings. There was a clear feeling that this truly Central and Eastern European project has an important role to play in sharing the experiences of all the countries represented and shaping policies to improve the working environment of civil society organisations in the region.

There are certainly several clear direct gains but also some question marks around the real and long-term effects of the new percentage system. While it is still too early to give an overall verdict, the Percentage Philanthropy study makes a significant contribution to sharing knowledge and practice on percentage laws, as well as developing thinking on the need to develop a range of different funding tools to support the Third Sector.

Further Assistance

Conference participants from at least 10 additional countries expressed a strong interest in developing their own percentage laws. Discussion at the conference highlighted the need to develop innovative resource mobilisation policies, especially in "resource-dry" countries.

Marianna Török is Director of the Nonprofit Information and Training Centre (NIOK) in Budapest.
E-mail: => m.torok@niok.hu
Web: => www.niok.hu and www.onepercent.hu .

First published in SEAL (Social Economy and Law Journal), Winter 2003 - Spring 2004. See => http://www.efc.be/publications/sealabstract.html .

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