Article in O Globo: “It is necessary to change the paradigm of tax incentives and philanthropy”
The following article, written by Patrícia Villela Marino and Priscila Pasqualin, was published in the Prática ESG platform, of the newspapers O Globo and Valor Econômico, on March 22, 2023.
The President of the Republic has said that it is necessary to put the poor into the budget and the rich into the Income Tax. He tries to convince that this is the right way to go, as if it were the best way to achieve social justice, equity, greater income distribution, with a simplified correlation between the income tax of the “rich” and the “poor”.
The increase in those exempted from the IRPF (Individual Income Tax Declaration) and the taxation of dividends paid by companies, that is the way that has been announced. There is talk of increasing public spending on social policies. This may be one way, but it is certainly not the only one.
Isn’t it time to encourage that the “poor” enter the budget of the “rich”, changing the logic of the tax incentives we have today, so that they are more efficient in many dimensions and not just the financial one?
Philanthropy is a way of exercising citizenship and assuming a civic-social duty, with responsibility and engagement.
One of the important strengths of democracy is the presence of an organized civil society. And this we have. We have seen how fundamental it has been in recent years, especially in reducing the damage caused to health, education, the environment, culture and human rights.
During the pandemic, there was a record increase in the volume of donations – more than 7 billion reais were donated. This reflects a society rich in values, bonds, and social fabric. Therefore, a society that is stronger, more autonomous, and, as a consequence, more sustainable. After the pandemic, the volume of donations fell.
How can the Brazilian government encourage the continuity of this culture of donation and solidarity beyond these moments of crisis?
In more developed countries, this manifestation of solidarity is seen more frequently. It’s no wonder that the number of donations increased by 10% in high-income economies after the pandemic. Brazil has also improved, having moved up to 18th place in the world ranking of donations, but we can go further.
It is known that in other countries there are tax incentives for donation that are simpler and greater than ours. Such as, for example, a policy to encourage the distribution of wealth through the allocation of resources to endowments or philanthropic funds, foundations and associations that have a collective or public interest and not just through high taxation.
International experience shows that the existence of a system for creating Heritage Funds coupled with the granting of tax incentives to donors creates a fertile environment for the development of this funds. In addition, it stimulates the culture of donation within a country as a mechanism for strengthening civil society and social development.
But how can you trust that the resources will be well used by the organizations that receive them?
Due to this culture of mistrust, income tax incentives in Brazil are bureaucratized and represent a destination of taxes to projects previously approved by public agencies.
The public agency then has the responsibility to indicate which type of project can receive the resource, to select organizations, and to demand accountability. After all, this is not about the actual donation of individuals, but about the destination of public resources – the tax that should be paid.
As a result, only 1% of the individuals who can use these benefits actually use them. In 2015, for example, the amounts effectively donated with tax incentives totaled R$78.5 million, which corresponds to 0.45% of the total amount that could, in theory, have been donated if all the declarants used all the available tax incentives.
We know that the bigger the bureaucracy, the greater the chances of corruption.
In countries where there is a greater volume of donations, the tax incentive is more simplified and does not represent a destination of the tax to be paid, as here. The donation can be deducted from the tax calculation basis. In practice, part of the resource comes out of the donor’s pocket and another part comes out of the government’s pocket, through tax waivers.
With this, the donor has greater participation in the choice of the donating institution, which can lead to an increase in engagement and a sense of responsibility for helping others. In the United States, the deduction can reduce from 20% to 50% of taxable income, depending on the type of benefiting institution.
If we follow suit, we could create a tax incentive that allows donations made to civil society organizations to be deducted from the income tax base. The biggest incentive would be when the donations are made to endowments or philanthropic funds, with the aim of attracting private resources to serve as a perpetual source of revenue for the causes of education, health, culture, human rights, and the environment.
And what about monitoring the use of resources? This is where we can change the paradigm. It will be up to people to willfully select the institutions to which they are going to allocate their resources, as well as to accompany and engage with them.
Law 9.790/99, which was born from the strengthening and professionalization of civil society, led by Ruth Cardoso, already foresaw the obligation of broad transparency of the organizations’ financial statements and activities, and the possibility for any citizen to request information and verify the correct fulfillment of their purposes. The Equity Funds Law, nº 13.800, also foresees the duty of wide transparency.
Recent research on the results of donations made more freely to civil society organizations shows that they have increased their internal management capacity, strengthened their leadership, and increased the strategic rigor in their actions.
An unbureaucratic tax incentive that stimulates the citizen to exercise an engaged and responsible philanthropy can create a virtuous circle of increased solidarity, distribution of wealth, and co-responsibility between the State and citizens for the welfare of all, without making socio-environmental policies an exclusive attribute of the Government.
With this, maybe we will be able to put the “poor” in the budget of the “rich”, in a true exercise of civic and socio-environmental engagement, generating a society richer in its social relations and bases.
About the authors: Patrícia Villela Marino is president of the Humanitas 360 Institute; Priscila Pasqualin is a partner at PLKC Advogados.