PLAN TO END TWO-PERCENT CORPORATE TAX CONTRIBUTION WOULD "UNDERMINE" THIRD SECTOR

NGOs fear plan to cut off their funds

THE FINANCE Ministry may only be considering throttling the incomes of non-governmental organizations, but already NGOs are predicting "catastrophe" if the plan is carried out.

THE FINANCE Ministry may only be considering throttling the incomes of non-governmental organizations, but already NGOs are predicting "catastrophe" if the plan is carried out.

In its search for new sources of state budget revenue to pay for pre-election promises to lower-income groups, the ministry is considering abolishing a rule allowing businesses to assign two percent of their payable taxes to an NGO of their choice.

The idea has been written into a draft amendment to the Corporate Income Tax Act and has been submitted for comments from other ministries.

"This would be a catastrophe for us," said Helena Woleková of the SocioFóra NGO. "It would cost us Sk700 million annually [the sum collected by NGOs in 2006 from the corporate two percent allowance - ed. note], a sum we cannot replace, which is why we are going to fight for the retention of the current mechanism."

"This is an invaluable source of income for us, because apart from Daffodil Day it is about the only income we have," said Eva Kováčová of the Liga Proti Rakovine (League Against Cancer).

The proposed change would still allow individuals to contribute two percent of their taxes to NGOs - Sk348 million was raised through this channel in 2006 - but would raise the minimum contribution from Sk20 to Sk250.

The damage the change would do, NGOs say, is greater than immediately apparent, as it would also prevent them from taking advantage of other sources of funding, such as EU structural funds. Many projects financed by EU money must be "co-financed" by the recipient; without their corporate-assigned income, many NGOs would thus not be able to stump up their share of the financing for EU-supported activities.

Viliam Pätoprstý, an analyst with UniBanka, agreed that the change would catch NGOs at a particularly vulnerable moment, given that their former international sponsors had begun to move further east after Slovakia entered the European Union in 2004 and became seen as a donor country rather than an aid recipient.

"Following the move eastward of multinational institutional donors, corporate donors became the main source of income for the Slovak third sector," he said. "It's difficult to say at this point how much the state might gain with this measure, but the social costs of such a decision seem to me to be incomparably greater."

Grigorij Mesežnikov, president of the Institute for Public Affairs (IVO) think-tank, said that the proposed tax rule change would endanger many of the publications his NGO puts out for the domestic market, such as its Global Report on Slovakia, an annual almanac.

"Back in 1997 to 1999, about 80 percent of our income came from institutional donors," he said. "By 2006 it had fallen to 20-25 percent, and next year it will be zero. That's why this two percent of taxes is so important to us.

"I see this move as a big step backwards that could undermine civil society. It's a technocratic approach by people who believe that eliminating tax breaks should be a goal in itself, no matter what the social benefit of providing those breaks."

The draft amendment also proposes that NGOs no longer be allowed to declare their first Sk300,000 in annual income tax-free, and that they henceforth be taxed the standard 19-percent rate on all their revenues.

While the plan was presented by Richard Sulík, a Finance Ministry advisor who also served under former minister Ivan Mikloš in the right-wing 2002-2006 Dzurinda government, it smacks of revenge against NGOs, who played a significant role in forcing the 1994-1998 Mečiar government from power.

Two parties in that administration - Vladimír Mečiar's Movement for a Democratic Slovakia and Ján Slota's far-right Slovak National Party - are also part of the current Fico government.

"It could be an attempt by statist elements in the government, people who don't believe that civil society is important, to hold back the third sector," said Mesežnikov.

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