How to help businesses save NPOs during a pandemic

During the coronavirus epidemic, not only Ukrainian enterprises but also those, who depend on their non-core costs, non-profit organizations (NPOs), and charitable foundations, suffer from income reduction. People who need drugs, at least those, who do not receive the full amount of state aid, suffer from reduced funding.

But despite all the difficulties, the government can help solve this critical problem without harming the core business of the companies.

The need for funding is enormous. About 22% of the total budget of Ukrainian charitable foundations is dependent on donations from private entrepreneurs. And in times of crisis, when many businesses have already gone underwater, and some are trying to stay afloat, how can they support NGOs as well?

Global uncertainty affects the mood because none of us can say for sure what is going to happen next.

With the money of business, charity funds finance many system projects, such as diagnostics and tests, a hospice in hospitals, operations and rehabilitation, support for children with cancer, and many others. At the expense of companies, the purchase of medical equipment is also partially carried out, and targeted assistance is provided.

In a crisis, while businesses are trying to wait it out, cutting costs on just about everything, many patients requiring daily support may simply not wait for help. That is why I considered it very important to raise the topic of tax incentives for business.

For example, in Europe, legal entities that donate to funds have tax incentives – this is an additional motivation to take part in charity work and develop it within their companies. In our country, such a practice, unfortunately, does not work yet.

The authorities have always treated such initiatives with a share of skepticism. The reasons are clear: this is the conservative approach laid down in the Ukrainian tax legislation, and the bureaucracy, and the numerous “laundries” that flourished under the guise of charitable foundations at the beginning of the independent path. But more than 20 years have passed, during which the charity sector has grown, the community has become more professional.

Despite the incredible problems that we have encountered in the country and in the world, charitable foundations can and should be helped now.

In my opinion, these could be quite specific and real measures:

  • First option. You can attribute the donation to the expenses of the company (now the donation is possible only from net profit). Of course, limiting the size of such a donation in percent.
  • The second option. If the company is ready to provide free sponsorship to a charity project (that is, without obligations from an NGO), then this can be attributed to the company’s advertising costs (but not more than 1% of the proceeds) and not be equated to a charitable donation, that is, to allow these expenses to other expenses.
  • The third option. Provide the right to a partial reduction in income tax rates. For example, if an organization provides charitable assistance in a certain amount (6-7% of the profit), then a reduced income tax rate is applied to this organization. This practice may be proportional: the greater the percentage of the profit the organization spends on charity, the lower the income tax rate is.

Moreover, we are well aware that legitimate doubts may arise. Won’t these privileges become loopholes for scammers and channels for obtaining unjustified tax benefits? I am sure that there will be no such problems. Once, 20 years ago, charitable foundations could be used as loopholes and channels. Since then, their transparency has become one hundred percent: today the fund simply will not be able to function if its activities and reporting do not comply with generally accepted standards. Reports are regularly sent to the tax authorities. And in the absence of such reporting, simply no one will deal with the fund.

The development of Internet technologies and the current level of development of charitable organizations make it possible to filter out unreliable funds from those that have worked well in the Ukrainian arena.

For example, the existing practice of verifying charitable organizations has long been used in the banking sector to provide benefits for servicing accounts and using financial instruments of the bank. There are NPO verification systems for joining crowdfunding platforms.

Many will say that in a crisis, it is not necessary to reduce tax revenues to the treasury of the country because there have already been fewer of them. But after all, charitable foundations are engaged in solving social, environmental, cultural, and other acute problems of society. The lives of thousands of our citizens literally depend on them. Of course, government agencies are doing this too. But, after all, we well know that the state is not going through the best of times. Only joint coordinated work of business and government bodies will allow solving the issue of financing NPOs at the proper level.