International study shows how tax incentives selectively boost giving
People are more likely to give to charities when they are offered tax incentives, but these are too often skewed in favour of the wealthy and causes supported by governments.
A major new report by the Charities Aid Foundation (CAF) shows that individuals and businesses are significantly more likely to engage with charitable causes if they live in a country which offers tax relief on donations – like the UK’s Gift Aid scheme – than if they live somewhere which does not.
Donation States, a study of 26 developed and emerging economies, compares the way tax incentives for charitable donations are offered across the world.
The report found that incentives are widely used by governments to encourage giving to charity, and help drive up both the number of people giving to good causes and the value of donations.
But it warns that regular basic rate taxpayers often have less access to generous incentives than wealthy people and companies.
Governments should not cherry pick favourite causes and incentives should be just as generous to people on moderate incomes as to the wealthy
The report states that while focussing incentives on those with the greatest ability to give money may appear pragmatic in the short term, it risks inflicting long-term damage on charities and discouraging giving by the majority if incentives are perceived to be unfair.
In some countries, governments only offer incentives for causes that promote their priorities. Such favouritism risks damaging the long-term development of a healthy civil society.
Two-in-three countries worldwide offer tax incentives on charitable donations but little comparative research has previously ever been undertaken into how they work.
The CAF study analyses the tax regimes and incentives of 26 countries covering six continents ranging from the UK and United States to Nigeria and Bangladesh.
It sets out a series of recommendations for making tax incentives schemes effective. These include incentivising all causes under exactly the same terms, stopping governments from deciding which types of causes qualify.
It also states that charitable giving cannot be used to compensate for public service cuts.
The report’s author, CAF international policy manager Adam Pickering, said: “Tax incentives are worth many billions of pounds to good causes worldwide and it is a great thing that there is such a strong international support for charitable giving being incentivised in the tax system.
“Such incentives are not the biggest motivation for people to give – and nor would we want them to be. But it is clear that they can be an effective way for governments to encourage people and businesses to support civil society.
“As we look to build the capacity of charities to do good across the world, there are important lessons which can be drawn from the benefits and weaknesses of the diverse range of tax incentive schemes in different countries.
“Crucially, it is important that they are easy to understand, non-politicised and progressive. This means that governments should not cherry pick favourite causes, and that incentives should be just as generous to people on moderate incomes as they are to the wealthy and big businesses. If incentives are seen to be stacked in favour of an elite few, this could have a chilling effect on mass engagement in charitable giving in the long run.”
