[Philanthropy Learning Forum] How Far Does Tax Incentive Foster Philanthropy in Indonesia?
“How far does Tax Incentive Foster Philanthropy in Indonesia?”
December 15, 2015 – A report called “Rules to Give by a Global Legal Environmental Index” published by Nexus, McDermott Will & Emery and the Charities Aid Foundation (CAF) in 2014 concluded that tax deduction incentives for individual donors and corporations has been successful in increasing philanthropy contributions significantly, even more so than economic growth. This finding is particularly evident in developing countries.
Indonesia has established tax reduction incentive regulations for donations to non-profit activities through Law No. 36 year 2008 regarding Income Tax, Government Regulation No. 93 year 2010 regarding “National Disaster Countermeasure Contribution, Research and Development Contribution, Education Facility Contribution, Sports Development Contribution, and Social Infrastructure Development Cost Deducted from Gross Income,” and Minister of Finance Regulation No. 76/PMK.3/2011 regarding “Record-keeping Procedures and National Disaster Countermeasure Contribution, Research and Development Contribution, Education Facility Contribution, Sports Development Contribution, and Social Infrastructure Development Cost Deducted from Gross Income Report.”
How effective are these policies and regulations in supporting the growth of philanthropy in Indonesia? The 2nd Philanthropy Learning Forum (PLF) discussed this topic by inviting three keynote speakers: Waskito Eko Nugroho, Head of Tax Regulations Analysis Division, Directorate General of Tax, Finance Ministry; Prof. Haula Rosdiana, Professor of Tax Policy, FISIP Universitas Indonesia; and Sentot Priyanto, Tax Partner RSM Indonesia.
The discussion was enriched by two corporate representatives that support non-profit programs: Hario Soeprobo from First State Investment Indonesia, and Shirley from PT Adaro Energy. There were also representatives from two non-profit organizations, Linda Hoemar Abidin from the Koalisi Seni Indonesia (Art Coalition of Indonesia) and Muhammad Senang Sembiring, from the KEHATI Foundation.
Franky Welirang – Co Chair Badan Pengarah PFI
The event was opened by hosts Robin Bush (Leader Knowledge Sector Initiative Team) and Franky Welirang (Co-Chair of Association of Philanthropy Indonesia Advisory Board). Suzanty Sitorus from PFI Executive Board acted as moderator for this discussion.
Based on the contributions from the keynote speakers, the subsequent discussion, and input from participants, here are the kay takeaways from PLF 2:
- The implementation of tax incentive regulations, especially tax-deductions for donations made to non-profits, shows many unresolved issues that hamper its effectiveness in encouraging philanthropy contributions from individuals and corporations.
- At present, the Income Tax Law is under revision by the government and the House of Representatives (DPR). this provides an opportunity for philanthropists to give constructive feedback.
- The evaluation of tax incentive regulations needs a much deeper assessment. The PLF 2 discussion is only the beginning of structural and operational constraint identification.
- The structural problem in tax incentive regulations is related to the law maker’s lack of understanding of how the non-profit sector contributes in solving the problems faced by the nation, whether they be social, environmental or economic. There is no public awareness regarding the extent to which the non-profit sector has contributed in taking the load off of the government’s shoulder in areas of development. There has been a disparity: cases that contribute to disorder and worsen problems, both in the short and long-term, have been given ease from the government; meanwhile incentives for improvement, renewal, and restoration in social, environment, and economy issue have been minimal. This disparity provides a very narrow range of non-profit activities that tax incentive covers. There are many other initiatives that have not been included, such as conservation, art and culture, health, and social justice.
- The operational problems in tax incentive regulation relate to laws and policies that are not clear or detailed enough to make it easy for donors and tax consultants to utilize tax deductions. Additionally, there are some provisions that are unsupportive, for example the 5% limitation on donation from the company’s net income and the disconnection between provisions in tax incentive for philanthropy law/regulation with other provisions in the Foundation Law. Some concepts and terms in those laws/regulations – for example, “special connection” in relation to the connection between benefactor and beneficiary – also needs further explanation to avoid multiple interpretations and confusion between taxpayers and tax officials.
- These various problems in tax incentive on one hand shows a half-hearted regulation implementation by the government; and on the other a lack of trust shown by the government towards non-profit/philanthropy organizations and corporations. The philanthropy community needs to figure out a way to build a system or mechanism to increase its credibility. This will hopefully prevent the misuse of tax incentive by corporations or individuals.
PFI is expected to coordinate efforts to give inputs and recommendations from the philanthropy community to the Income Tax Law revision process.
These recommendations will be supported with an academic paper and studies that support the basic idea underlying each argument. One of the most important points that needs to be included in the paper is the quantitative value of non-profit sector contributions in solving social, environmental, and economic problems.