The South African Council of Churches (SACC) has appealed to revenue officials to revise the new tax system for public benefit organisations (PBOs). The Council called for a simpler registration procedure for small organisations and relaxed trading restrictions to enable non-profit groups to generate income and to become more self-reliant.

In a submission to the Portfolio Committee on Finance, the SACC Parliamentary Office noted that there are tens of thousands of small, community- and faith-based organisations - including local congregations - engaged in a wide range of public benefit activities at the local level. In terms of legislation enacted three years ago, all of these organisations are required to register with the South African Revenue Service (SARS) by 31 December 2003 if they wish to retain the tax exemption that has been available to them in the past.

Rev. Keith Vermeulen, Director of the SACC Parliamentary Office, warned that a much greater proportion of South Africa's 100 000 non-profit organisations will need to register under the new system. "Many organisations believed that the old exemption for religious, charitable and educational institutions rendered them automatically exempt from tax," Rev. Vermeulen pointed out. "Where religious denominations registered, a denominational certificate of exemption typically covered all the church's local congregations, too."

Although the new system allows for group exemptions, most denominations are not able to comply with the group registration requirements. Instead, they are encouraging their congregations to register and report to SARS independently. "Local parishes, like other small community groups, have limited income and administrative capacity. They are not accustomed to dealing with tax matters," Rev. Vermeulen said. "The current registration and reporting requirements impose enormous burdens on SARS and community groups alike."

The SACC said it was engaged in continuing discussions with revenue officials about how to make it easier for small PBOs to comply with the law. The Council asked the Portfolio Committee to shift the PBO registration deadline to 31 December 2004 to allow time for the development of appropriate amendments to the Income Tax Act.

The Council also objected to the tight restrictions imposed on PBOs' ability to generate income through trading. The current funding environment compels PBOs to diversify their funding bases and to explore trading activities as a potential source of income. Donors are also more likely to support organisations that demonstrate initiative in developing independent sources of funding.

In most cases, however, the Income Tax Act prohibits PBOs from earning more than 15 per cent of their income from trading. An organisation that inadvertently exceeds this limit can have its tax exemption summarily withdrawn. This inhibits PBOs from developing stable and sustainable sources of income. Furthermore, PBO trading activities are often integral to other public benefit activities, such as skills development and training programmes.

The Council therefore called on Parliament to relax the limit on PBO trading income and to assess tax on income earned in excess of the limit, rather than deregistering the responsible organisation.

The SACC submission, made in connection with the Revenue Laws Amendment Bill, applauded certain provisions of the Bill, including tax concessions that would encourage donors to support a wider range of public benefit activities. The Portfolio Committee on Finance plans to commence public hearings on the Bill on Thursday, 23 October.

Issued on behalf of the SACC Parliamentary Office by
Douglas Tilton
Associate for Research and Communication
Contact: 021 423 4261