New Study: in 5 CEE Countries 17 million Citizens Designate Taxes to NGOs

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Figure 1: Growth of 1% designations, individual donations in Hungary, 1996-2013 (see page 35)

It comes straight from the printshop: the first study comparing tax percentage designation in several European countries. The “Assessment of the Impact of the Percentage Tax Designations: Past, Present, Future” is a research project that has been commissioned by the ERSTE Foundation and implemented by the Centre for Philanthropy, a not-for-profit organization in Bratislava.

What is tax percentage designation? There are different ways for civil-society and NGO’s to gain financial support. There is government funding and/or private funding from domestic or foreign donors. In case of many Central and Eastern European countries a trend in recent years has shown a steady decline in foreign donors and a lack of government funding. This development ultimately left a large number of marginalised and disadvantaged groups in jeopardy. A functioning civil-society sector is vital to the functioning of a well-informed, equal and democratic society.

However, since the 1990s some European countries have introduced a tax designation concept which varies slightly from country to country. Its core principle is to grant the right to a taxpayer to designate 1% or 2% of paid income tax to a non-profit, non-governmental organization or other type of public benefit entity or to a church. Today the CEE countries with such a tax designation system are Hungary (since 1996), Lithuania, Poland, Slovakia and Romania.

To date, twenty years after the introduction of the mechanism in Hungary and ten years after the latest and only comparative research, a need has emerged to evaluate the mechanism in light of its original ambition.It is important to mention that a broad concept of the percentage tax designation exists in countries worldwide like Italy, Japan or, since 2015, Moldova. This study, however, focused on one particular type of percentage mechanism: one with the primary aim to benefit mostly civil society’s not-for-profit entities.

A question to be answered by the study was whether this mechanism could be one possible solution for bridging the above mentioned funding gap: an innovative approach to raising public funding in order to strengthen civil society.

An international team of country research associates (CRAs) from Croatia, Czechia, Estonia, Hungary, Italy, Lithuania, Macedonia, Romania, Serbia and Slovakia operated under the coordination of lead researchers Marianna Török and Boris Strečanský. The study shows the practitioners‘ as well as researchers‘ perspectives on the tax designation issue. Research associates from tax designation countries as well as from countries without the mechanism. The research was conducted during 2015 in the five CEE countries that use the percentage tax designation system.

It focused on the following areas:

1) What the percentage tax designation system actually is and what it is not?
2) What is its role in funding of the non-profit sector?
3) What are its side effects?
4) What is the connection between the policy making and the results?

Some results of the study:

  • In five CEE percentage club countries almost half of the population, around 17 million of all individual taxpayers, use the designation mechanism. Although the financial value may be not so high, the societal value seems to be big.
  • Secondly, the mechanism has a number of non-monetary benefits: it is depoliticized, decentralized, flexible and general purpose from the perspective of CSO recipients. In Hungary for example, both 1% tax designation and individual donations show a growing trend. That means that the tax designation does not influence private giving in a negative way there.
  • It was established that there is a tendency towards making the mechanism more efficient and user friendly.
  • The mechanism has shown its viability also towards issues of funding of church and in some countries, also political parties.

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Figure 2: Number of beneficiaries of percentage regulations in five countries (based on “Per Phil database” using national data sources) (see page 53)

More findings to be found in this first transnational study on the topic.
Use our publications-section to access or download the entire study for free.

Further information on www.taxdesignation.org