Getting a Tax Break?

In many countries, charitable donations or those classified as philanthropic contributions are tax deductible; in some cases, regular donors are accorded tax exemptions.

In Indonesia, the government ignores the philanthropic nature of such donations.

With a high prevailing income tax of around 20 percent here, tax deductibility would greatly help in raising donations from the public for various charitable causes, including in cases of national disasters.

The current law on personal income clearly states that donations are non-deductible expenses.

The only time the government made an exception was following the devastation of the 2004 earthquake-triggered tsunami in Aceh and North Sumatra.

In a bid to encourage aid, relief and charitable donations, the finance minister issued a regulation in February 2005 allowing donations in cash or goods for the tsunami victims to be deducted from the tax base. But there were conditions.

Donations could only be made through a select number of registered organizations or institutions, due proof had to be attached and the tax deduction only applied to those taxpayers with a flexible annual tax amount. Regular companies or workers with fixed annual taxes were excluded.

However, pressure is now mounting for the government to provide incentives, including in taxes, to encourage philanthropy. Various groups, including  non-profit, non-governmental organizations, have been busy preparing input for the government.

In the past few years, every time a draft revision of the tax law comes up, proposals to classify donations as tax-deductible expenses have been repeatedly made, especially by NGOs.

But so far, it has never come up for debate. Many have blamed it on the government's "linear thinking" when it comes to tax collection, or the unpreparedness of recipients of the donations themselves to provide proof of transparency, accountability and proper management.

Proponents of the tax deductibility clause argue that with such public donations, the government's load in cases of natural disaster would be alleviated.

Opponents, including the government, argue that implementing such a system could lead to misuse and abuse, both by recipients and donors, if it was not closely monitored.

In a discussion on tax and philanthropy in the education sector, held by a private foundation at the end of February, Directorate General of Taxation spokesman Djoko Slamet Surjoputro said that the government was already mulling moves toward the provision of tax incentives for philanthropic activities.

"In the draft revision (on the tax law), scholarships would no longer be taxed while financial assistance by social organizations, donations for victims of national disaster, for research, social infrastructure development and education facilities, would also be exempted from taxes under certain conditions," Surjoputro said.

However, he gave no further details on the planned implementation.

+ Bhimanto Suwastoyo

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