Ninth Interim Report of the Commission of Inquiry into certain
Aspects of the Tax Structure of South Africa

(Katz Commission)

FISCAL ISSUES AFFECTING NON-PROFIT ORGANISATIONS (NPOs)

Contents

Introduction
Tax Treatment of NPOs
Legislative Framework
Current Practice
Critical Policy Issues
Specific Proposal
Appendix 1
Appendix A

INTRODUCTION

1.1 The Commission appointed a Sub-Committee to review existing fiscal legislation affecting Non-Profit Organisations (NPOs), and to advise with reference to possible changes therein with a view to achieving a more supportive fiscal environment. There are two broad themes which constitute the particular focus of the enquiry, namely:

1.1.1 The principal exempting provisions are contained within section 10 of the Income Tax Act No. 58 of 1962, as amended, ("the Act"), namely sub-sections 10(1)(f) and 10(1)(fA), which respectively deal with:

1.1.1.1 religious, charitable and educational institutions of a public character [s.10(1)(f)]; and

1.1.1.2 any fund the sole object of which is to provide funds for any religious, charitable or educational institution contemplated in paragraph (f) [s.10(1)(fA)].

1.1.2 The provisions of the Act (s.18A) restrict the benefits of donor deductibility to:

1.1.2.1 universities, colleges and educational funds (as defined); and

1.1.2.2 a deduction from taxable income, not exceeding:

1. in the case of individuals, five hundred rand (R500,00) or two per cent (2%) of taxable income; and
2. in the case of companies, five per cent (5%) of taxable income.

1.2 Although the investigation does not purport to address comprehensively the other provisions of the Act which have reference to NPOs, including the remaining provisions of section 10, which contain a lengthy categorisation of activities that may be eligible for tax exemption, subject to compliance with various qualifying conditions, it does make certain recommendations about donations tax, estate duty and value added tax.

1.3 Organisations which are exempt from income tax in terms of the provisions of section 10, are generally also eligible for a range of other fiscal benefits, including those relating to stamp duties¹, marketable securities tax², transfer duty³, estate duty⁴, donations tax⁵, value added tax⁶ (VAT), and Regional Services levies⁷. Certain fiscal privileges are also contemplated in respect of customs duty and excise for restricted purposes, as specified by the statute⁸. To a lesser degree, this report canvasses certain amendments to some of this legislation.

1)  Stamp Duties Act, No. 77 of 1968, as amended (section 4).
2)  Marketable Securities Tax Act, No. 32 of 1948, as amended (section 3).
3)  Transfer Duty Act, No. 40 of 1949, as amended (section 9).
4)  Estate Duty Act No. 45 of 1955, as amended (section 4).
5)  Income Tax Act No. 58 of 1962, as amended (sections 54 - 64).
6)  Value Added Tax Act, No. 89 of 1991, as amended (sections 12 - 13).
7)  Regional Services Council Act, No. 109 of 1985, as amended (Section 12(1A)d).
8)  The Customs and Excise Act, No. 91 of 1964, as amended.