The Financial Express

Promoting charity by tax exemptions

| Updated: November 20, 2021 22:08:47

Promoting charity by tax exemptions

Charity is a virtue that is also considered  a social and moral obligation for the affluent.   Almost every religion strongly encourages charity by making it an obligatory duty for those who have adequate resources. Charitable works help support vulnerable sections of society and contribute to improving their lives. Generally, charity is defined as the act of giving money, food, or other kinds of help to people who are poor, needy and sick without receiving anything of value in return. The giver or donor may give it directly or through any charitable organisation.

Though charity is an act of unselfishness or generosity, it brings a sense of mental peace to the donors and they feel good. As there is also the pleasure of giving to and helping the needy, the givers feel the satisfaction of complying with religious obligations and social responsibilities. Giving also boosts the morale of donors. Beside all these intangible benefits, there may also be worldly rewards in different forms.  Charity helps improve a donors' social status and it becomes a source of inspiration to many others to do a charitable donation. There are also community and national recognitions which act as an encouragement for others. Modern states also encourage charity and philanthropy to mobilise resources indirectly by providing tax exemption.

Tax exemption is a strong tool to encourage and enhance charity across the world.  As rich people usually do not want to disclose all of their incomes, even after paying hefty taxes, they need some windows to spend a portion of their high income for the welfare of society.  Instead of providing money to the state coffer, those can be channelled to different charitable organisations working for social welfare.  So, tax exemption helps them to donate some money to these organisations.

In Bangladesh, currently, there are six broad and six specific institutions where donation is tax-exempted or tax-free. The six broad areas are: national-level institutions dedicated to the memory of the Father of the Nation; Zakat Fund, National Board of Revenue (NBR) approved charitable hospitals; institutions set up for the welfare of the disabled; and national level institutions engaged in memory of the liberation war; and government-approved public welfare or educational institutions. The six specific institutions are: Liberation War Museum, Aga Khan Development Network, Ahsania Cancer Hospital, Asiatic Society, ICCDR'B and Centre for the Rehabilitation of the Paralysed (CRP). 

Many of the taxpayers are, however, not well aware of the tax exemptions for donations. The tax authority also does not feel any urge to widely publicise the tax benefit linked with the donation to recognised areas and institutions. Moreover, the number of specific institutions is very limited to get tax exemption against donation to charitable funds.  This has discouraged many to make charity for other institutions or organisations working for different social welfare activities.  Again, individual charity is not getting any tax exemption.

Against this backdrop, it is time to widen the tax exemption for charity more transparently.  The government should provide a complete list of institutions and organisations eligible for the taxpayers to get tax exemption for donating money there. The list needs to be available on the official websites and in all the tax offices and should also be updated annually. The rules also need to be highlighted and available to all. Moreover, a tiny amount of taxable income (say Tk 10,000) may also be eligible for tax exemption for individual charity for which no document will be necessary. 


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