Ｌｅｓｓ　Ｔａｘ，Ｍｏｒｅ　Ｋｉｎｄｎｅｓｓ？ Less is More

　　While there are more than 10 million government-registered companies in China, a recent survey found that fewer than 100,000 of them have any record of making charitable contributions, with many experts citing the country’s tax policies as an important reason for this situation.
　　
　　This means that around 99 percent of these enterprises have never taken part in a charitable activity, according to the results disclosed by Chen Xinnian of the National Development and Reform Commission. This makes the public think that Chinese enterprises lack kindness and social responsibility, experts say, a view that many entrepreneurs dispute.
　　“While we are working cautiously and conscientiously on our business, we do not forget to make generous donations, and while we are creating wealth we understand the importance of repaying society,” said Wang Jianlin, Chairman of Dalian Wanda Group in northeast China’s Liaoning Province.
　　Wanda Group is well known because of the highly successful soccer team it once sponsored. But few people realize that the group has made more than 800 million yuan ($99.01 million) in charitable donations over the past decade. It provided 500 million yuan ($61.88 million) to build Dalian University, becoming the only domestic company to invest in the construction of a university.
　　But even for such a seemingly socially conscious enterprise, the tax law has a stifling effect. As Wang complains, “It’s not that we don’t have good will, but charitable work does not have a corresponding benefit under the present tax law.”
　　“The more you donate, the more tax you have to pay,” said Wang. “This is an unbearable burden for companies, where making profits is the main purpose.”
　　An example may make the entrepreneurs’ situation easier to understand. If a company has an annual profit of 10 million yuan ($1.24 million), it must pay 33 percent of that in income tax, or 3.3 million yuan ($408,416). If this company wants to use 1 million yuan ($123,762) of that profit to make a charitable donation, it must pay tax on 700,000 yuan ($86,633) of that contribution. That is, the company still has to pay 231,000 yuan ($28,589) in tax in addition to the 3.3 million yuan ($408,416).
　　“Given the low ratio of tax exemption, enterprises in China lack the economic incentive to donate,” said Xu Yongguang, Vice Chairman of China Charity Federation.
　　Tianjin-based Tianshi Group Co. Ltd. has donated a total of 430 million yuan ($53.22 million) since 1996, according to Vice President Bai Ping. But from now on, to avoid “paying repeated taxes,” Tianshi Group will only make donations to those charities that are able to reduce or remit taxes, said Bai. In fact, the group’s president, Li Jinyuan, is enthusiastic about charitable activities, “but now Tianshi Group has to start making donations to foreign funds,” Bai said.
　　Companies or individuals involved in charitable activities share part of the social responsibility with the government, and they normally receive tax-exempt treatment in many nations. That is not the case in China, however, at the moment. Chen of the National Development and Reform Commission acknowledged that Chinese companies and individuals are not active in charitable giving, mostly because of institutional reasons. Taxes are a big “bottleneck,” he said.
　　Wang Zhenyao, Director of the Disaster Relief Department under the Ministry of Civil Affairs, has a different explanation for the dearth of charitable activity. He said that China has clear, preferential tax policies, but many people do not apply for a tax exemption after they make donations, partly because they are not familiar with the tax law and partly because some of the benefits of tax exemption are offset by the complex application procedures.
　　
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　　He cited his own experience as an example. He once donated 500 yuan ($61.88) to the China Charity Federation. “It took me two months to undergo 10 procedures to get back my 50 yuan ($6.19) of tax exemption.” Wang said.
　　Under the current laws, charitable organizations in China can also apply for a tax exemption, but there is no clear framework, said Wang Ming, Director of the Institute of Nongovernmental Organizations at Tsinghua University. Only those that are able to get approval from the State Council, China’s cabinet, can enjoy the tax exemption.
　　It is known that the Red Cross Society of China was the first organization to benefit from the preferential tax policy for charities. Documents issued by the Ministry of Finance and the State Taxation Administration in 2000 stipulate that donations made by taxpayers to the Red Cross through nonprofit social groups and government departments can be totally deducted before corporate income tax is paid.
　　Related Chinese laws provide that all charitable organizations must be overseen by the relevant authorities, most of which are government departments. So those charities with strong government backing have “monopolized rights.” Compared to them, nongovernmental charitable organizations face almost the same problems as private enterprises: They have difficulty in getting contributions due to a lack of public trust, they are put in an unequal status in terms of tax policy and they have to be affiliated to government organizations to become registered.
　　“In view of the tax exemption, the government certainly should keep a strict watch on charities,” said China News Service commentator Qiu Feng. “But it seems that it should not be so strict that only a very small number of organizations are allowed to engage in charitable work.”
　　Qiu said the reluctance to become involved with charities lies in the current system that artificially creates a monopoly in the field, thus increasing the cost of charitable activities. He added that maintaining a monopoly and exercising too strict supervision over charities force them to be affiliated with the government, with the result that they will not become self-governed social organizations or attract people with both an entrepreneurial spirit and the willingness to engage in public service.
　　Tang Ming, Chief Economist of the Asian Development Bank’s office in Beijing, said that the capital held by Chinese charities now accounts for only 0.1 percent of gross domestic product. In the United States, for example, the number of people engaged in charity and public welfare-related work constitutes 10 percent of the total working population. So, comparatively speaking, it’s much easier for the U.S. charities to collect money, Tang said, adding that the tax code issued by the United States in 1986 stipulated that public welfare institutions can be exempt from paying tax.
　　Wang Lijuan, founder of the Beijing Zhiguang Special Education Training School, said, “I hope one day in the future our school can ‘sit as equals at the same table’ with those charitable organizations that have government backing in terms of getting private donations.” Since it does not benefit from preferential tax policies, this vocational education institution, which is targeted at mentally disabled adults after they receive the nine-year compulsory education, is developing slowly without private donations.
　　Experts interviewed by Beijing Review all agreed that the charity tax system should be reformed and that it is essential to “encourage competition and break the monopoly” of government-backed institutions.
　　Wang of Tsinghua University noted that efforts are being made “in this direction.” He said the Ministry of Civil Affairs is drafting a law on promoting charitable undertakings in China, which provides the qualifications for tax exemption.
　　At the first China Charity Conference held in November 2005, the Central Government promised to provide a convenient and standardized format for donation-related tax reductions and exemptions. “We are negotiating with the taxation and financial departments to work out the new tax reduction system for donations,” said Wang of the Ministry of Civil Affairs.
　　Prior to the conference, Minister of Civil Affairs Li Xueju admitted that the current tax policy dampened companies’ enthusiasm for making donations. During the conference, the Ministry of Civil Affairs publicized guidelines for the development of China’s charities for 2006 to 2010. It clearly pointed out that the charity tax exemption policy will be a project for the ministry over the next five years.
　　But reform is not an easy task. Currently, income taxes, including both corporate and individual payments, account for 20 percent of total tax revenues. Changes in the tax policy for charitable donations certainly will affect the overall tax revenues of the country.
　　“Even if we increase the quota for the preferential tax policy, we need to think very carefully about how much we should raise it,” said Zhang Xuedan, a tax expert at the Ministry of Finance.
　　Tsinghua University’s Wang said government departments are considering the idea of raising the tax exemption from 3 percent to 10 percent, which is also the generally accepted international standard.
　　As for the possible results of the tax reform, some experts claim that it is good for entrepreneurs to participate in charitable activities but not to directly make them become philanthropists.
　　Zhang of the Ministry of Finance said that even after the tax exemption standard is revised, donations may not rise a great deal. On the one hand, companies will weigh the benefits and costs before they decide whether to make donations or not, and thus the amount of donations will not expand in the short term. On the other hand, Zhang is more concerned about the possibility of tax evasion in the name of charitable giving.
　　Statistics from the Ministry of Civil Affairs show that 289,000 nongovernmental organizations are registered with the ministry, including professional and non-professional charities. Professional ones are those specifically involved in charity work, while the non-professional designation refers to those organizations for whom charity is only a part of their scope. In the latter case, a legal framework for control is lacking, so the government has yet to find effective ways to manage these organizations.
　　Thus, Zhang maintains that since there are loopholes in China’s tax supervision, promoting the “Generalized System of Preferences” too soon would probably play into the hands of unscrupulous people.
　　Qiu, the China News Service commentator, doesn’t think it is necessary for the government to keep such tight control over charitable organizations. “Charity activities can partly ease tensions in the society. The government ought to create more relaxed conditions for the development of the charity field.”

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