What are the taxation aspects of Non Profit Organizations?

What are the taxation aspects of Non Profit Organizations?

A brief summary of governments revenues

Governments fund their activities in a range of ways. The main components of government revenue are typically consumption taxes, income taxes and a range of non-tax revenues, including grants from donors. The exact mix of revenue sources reflects economic, historical and political factors in each country.Non profit organizations do not have shareholders or pay dividends like a for profit corporation.Non profit organizations are made to help poor and needy people.

Tax and Non-tax Revenues

A tax is a compulsory transfer from individuals and businesses to the government. It’s not paid in return for any specific government service. Nevertheless, tax-paying citizens are likely to expect the government to provide certain services or benefits using the tax money it collects.

In addition to taxes, there is a range of non-tax revenue sources. These include grants from international flights institutions and foreign governments and user fees. Some non-tax revenues such as foreign aid and oil revenues do not come directly out of citizens pockets. Citizens may thus be less concerned about how these funds are raised and allocated. But citizens should be concerned about all revenue that government raises since all of these funds have the potential to contribute to society’s well being.

Civil Society Analysis of the tax burden on the society

Civil society budget groups are often concerned with whether a country’s tax burden is distributed equitably. An answer to that question ideally would draw on enormous amounts of detailed data about individual taxpayers, their incomes, their consumption patterns, and the taxes that they pay. Such information, however, can be gathered by only tax administrators, and statistical agencies, which may conduct household surveys of income and expenditure. If such detailed data are not available which is often the case in developing countries-civil society groups can still contribute to the debate on equity.

Examples on how Non Profit Organizations can contribute to the debate on equity and fare tax policy

They might, for example;

1. Examine the tax system’s impact on a typical family.

A civil society group could examine the impact of the tax systems on typical families in different categories, for instance, single-parent household, a multi-generational household. If medium income data are available for a range of years, the analysis could examine changes in the tax burdens of these typical households over time by applying the tax laws in effect for each of these years (Friedman and Shapiro, 2006).

2. Examine the tax system’s impact on low-income households.

An NGO could compare the impact of tax systems on households with lower incomes, such as half of the median income or lower, with that of the impact on higher-income households. The analysis could highlight the income level at which households begin to pay the income tax, the so-called “tax entry” point and where that point is relative to the poverty line (see, for example, Levitis and Johnson,  2006). The analysis could also address the burden imposed on low-income households by other taxes. Proposals to change tax policies are often prompted by the need to meet some policy goals.

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