Philanthropy: Stuck Between a Rock and a Hard Place

Many complain that laws in Lithuania are unfavourable to charity, sponsorship, and other philanthropic pursuits. Last July the government set up a task force to review the Law on Charity and Sponsorship and to make necessary amendments to related laws. This initiative was expected to improve the conditions for philanthropic activities and the well-being of non-profit organisations. It was expected to curb bureaucracy, remove legal ambiguities and lift operational restrictions imposed on civil society organisations, thus strengthening their capacity to become financially self-sustainable units.
Sadly, the new draft law has failed to live to the expectations. True, it provides somewhat more explicit definitions of the concepts used, but these revisions are overshadowed by a whole host of drawbacks.
Provisions regulating the approval of programmes for support or sponsorship are the biggest cause for concern. The draft proposes that the exclusive right to endorse such programmes be given to government authorities. Luckily, an alternative provision has been hammered out, granting non-profit organisations the right to approve programmes on their own. Still, the problem is that the government will be responsible for working out the procedure for programme approval. This will no doubt invite a lot of unjustified red tape.
The draft in question does not simply fail to secure non-profit organisations’ right to earn income, but more importantly, imposes new restrictions upon them. A very common way of fund-raising, for instance, is to receive in-kind donations in the form of goods, sell them and use the proceeds to finance project activities. It is just as normal for non-profit organisations to sell the items that were used for implementing a project but became useless when the project ended. The right to sell goods received by way of charity or sponsorship has been a subject of much controversy, but the proposed draft places an unconditional ban on it.
Another concern is that the charity and sponsorship legislation upholds organisations which, according to legal acts regulating their activities, are not obliged to comply with the principle of non-appropriation of profit but still enjoy all kinds of concessions under the most favourable conditions. In addition to religious establishments, the lawmakers have concocted a new type of privileged organisations… charity pharmacies.
Donations received from abroad are in most cases distributed by Lithuanian organisations. Some foreign foundations, however, have no confidence in them and prefer to handle the job themselves. The draft law forbids this practice, suggesting that foreign donors should either be forced to “trust” Lithuanian organisations or set up their own units in Lithuania, even if these are going to be one-day establishments.
The authorities’ itch for the power of decision-making and control reflects in the provision that foreign donations must be “acknowledged” by state or municipal institutions. In practice it implies that any import of charity or sponsorship is feasible only with the consent of the state.
All of these constraints are placed on non-profit organisations under the cloak of abuse prevention. That abuse is in most cases caused by a “double” tax relief-a concession that exempts from income tax twice the amount donated-is clear. It is also obvious that the smart ones will make use of this concession in spite of any restrictions. Unique to Lithuania, this tax relief will nonetheless remain in force. Why? The lawmakers may have decided so for fear of appearing anti-philanthropic or simply out of habit. Regrettably, the tax concession will continue to smother philanthropic pursuits and spur ever-new restraints on civil society organisations. Despite the fact that the tax relief allows even financial machinations to go under the name of charity, the lawmakers haven’t had the guts to eliminate it. Nor have they ventured to humanise the huge governmental bureaucracy, which suffocates non-profit organisations just as much as taxes do.
A newly prepared draft law on income tax provides for a “double” tax relief for donors and sponsors but places an altogether unjustified range of restrictions elsewhere. At one point the draft law even treated donations as taxable income and forbade non-profit organisations to deduct costs from it. In practice this provision would translate into charging income tax on the entire donated amount.
With the conclusion of the new draft law on charity and sponsorship, hopes that donation procedures would be revised and activities of civil society organisations liberated began to fade. Meanwhile, non-profit organisations remain stuck between a rock and a hard place… taxes and bureaucracy.
(In response to the pressure from the LFMI and Western foundations, the submission of the draft law in question for governmental consideration was suspended, pending for the adoption of further amendments.)