Charitable tax benefits are also precision poverty relief

Should philanthropic donations to charity be tax free? Should the recipients be exempt from paying tax? The draft charity law was submitted to the National People’s Congress Standing Committee’s bimonthly session for a second reading on Jan. 4.

It contained some changes regarding tax deduction, a widespread concern, adding that special tax concessions for philanthropic activities can be offered. Experts suggest the principle of tax deduction should work in concert with relevant tax laws, so that people can truly benefit, as Southern Metropolis Daily reported on Dec 22.

The purpose of charity is to display a humanitarian spirit, promote traditional Chinese virtues of doing good and helping those in need. However, the fact that the giver has to pay taxes for charitable acts not only goes against the giver’s original intention and dampens enthusiasm to continue, but the recipient cannot fully benefit from any donation, which makes charitable acts less efficient. Therefore, the author believes charitable tax benefits are in fact a precise kind of poverty relief.

The goal of lifting 70 million people in rural areas out of poverty by 2020 cannot be achieved without the help of charitable organizations. Solving the contradiction between China’s current tax system and the development of its philanthropy involves not only the healthy development of the country’s charities, but achieving the overall goal of poverty eradication.

The current tax system for charitable acts has to some degree limited the development of philanthropy. In fact, there are a scarce variety of tax incentives. The incentive is mainly useful for personal income tax returns, while corporate donors have little incentive in terms of the value-added tax, consumption tax or sales tax.

Second, only donations in cash rather than kind enjoy relief. Third, the incentive policy does not always apply. According to current regulations, the donor enjoys the incentive only when donating to charitable organizations that are qualified for to claim a pre-tax deduction.

Therefore, the new charity law can truly benefit the people, and achieve more precise poverty relief only if the current tax barriers are removed and a scientific charitable taxation method is developed. If these conditions are in place, social forces will be fully mobilized to practice philanthropy, and every penny donate can be used to benefit the recipient.

(The author is a freelance writer from Shandong Province)