Global Trends in VAT/GST and Direct Taxes

S. 490I. The ‘preferential’ tax treatment of charities

Charitable organizations play, without doubt, an important role in our society. By making valuable contributions to the public benefit and welfare, they relieve States from certain tasks and responsibilities. This is especially important in areas where the State is not capable, not willing or not suited to take action. This consideration is one of the basic rationales in favour of a preferential tax treatment of charities, also known as the ‘interdependence theory’ or ‘tax expenditure approach’. Another view supports the idea of pluralism. According to that view, the variety of choices made by individuals and private organizations in fostering the public benefit can be more efficient and responsive to public needs and in many cases less cumbersome than actions of government administration. Thus, to a certain extent the society must decide which purposes are to be supported by financial means and these forces should be strengthened by tax incentives. This also means that the State does not have a monopoly in the realization of public purposes and takes a rather neutral position towards other, independent forces. As a consequence, many ...