Dawn of a New Era for Russian Philanthropy
by Maria Chertok
Vladimir Lenin once said: ‘The revolution that the Bolsheviks talked about so much has happened!’ The entire philanthropic community in Russia can repeat after Lenin this week. After years of advocacy efforts that seemed at times a waste of time and energy, the Russian Duma adopted a series of amendments to the tax code. Among other long-awaited changes, tax deductions for private donors are now law and will come into force next year.
Will this change boost charitable giving? Obviously not in the short term. Will it stimulate those who have never given before? Not likely, and definitely not overnight. One of the surveys a couple of years ago revealed that only 3% of the population claimed to be motivated by potential tax benefits. In this case, why is the new amendment so welcome? Firstly, it manifests the systemic change of the government’s attitude to giving, demonstrates trust to charities and appreciation of their contribution to social welfare. In Russia, where the state determines civic life so much, this is a very valuable sign of approval. Secondly, tax deductions will have a material effect on the population that is the most wanted as donors and supporters of civil society organizations – the middle class. They are the most financially independent part of the population and the most philanthropically inclined, but at the same time they do welcome financial incentives and will be definitely pleased to get something back for their donations. Finally, I think charities themselves should be very much inspired by the new law – and this inspiration is much needed, as financing is not easily available and the administrative and tax burdens add a lot of frustration to what should be a rewarding public benefit activity.
This final point is underpinned by other novelties included in the amendments. For example, the most unfair position – when charities had to pay profit tax on services which they received pro bono – is now history. The same applies to VAT on a range of social services rendered to the most vulnerable groups of charities’ clients, like the elderly, sick people, children etc. Reimbursable expenses to volunteers, such as travel or insurance, will not be subject to individual income tax anymore. These are very welcome changes indeed, as they make life easier for many charities – both in terms of tax risks and the overall cost of doing business.
Does the change solve all the problems? Of course not. There is a long way to go to create a friendly and supportive environment for charitable giving and the voluntary sector in Russia. The sector will also need to learn to promote the new benefits to existing and potential donors in order to benefit fully from the new opportunity. Still, for the time being, we are experiencing the great satisfaction of a major breakthrough and a hope for the brighter future ahead.
Maria Chertok is director of Charities Aid Foundation (CAF) Russia.