Time to cancel uncharitable VAT

What state must do, and urgently, is remove untenable financial hurdles preventing those who are providing assistance from maximizing their capacity to help.

poverty garbage jerusalem 224  (photo credit: Ariel Jerozolimksi [file])
poverty garbage jerusalem 224
(photo credit: Ariel Jerozolimksi [file])
The figures in the National Insurance Institute’s 2009 poverty report, published on Monday, paint a sobering portrait of the state of affairs for those Israelis on the margins.
According to the report, 2009 saw a sharp rise in poverty in Israel, with some 123,500 additional individuals, from 15,000 families, falling below the poverty line. That brings the total number of Israelis below the poverty line to 1,774,800 – almost a quarter of the population.
Alongside every hi-rise luxury tower and hi-tech success story in our rightly hailed “start-up nation” stand the ranks of Israelis left behind, poorer than ever as the country’s economy booms. The poverty gap can be expected to widen further, as the poorest sectors of society, haredim and Israeli Arabs, will continue to grow the fastest. Throw in the problematic state of our education system and the challenge looks urgent and stark.
Given such imperatives for action, the state must do all it can to encourage and support the many nongovernmental organizations that are working to help those in need, often in areas where the government has fallen short. And, indeed, the government does offer some incentives to encourage charitable giving, including income tax rebates on a percentage of one’s donations.
Nonetheless, there is more that could and should be done to make the help non-profits get the most bang for their buck.
ONE OF the most egregious absurdities is that charitable organizations are required to pay value added tax on all of the supplies they purchase. Unlike forprofit businesses, they are not able to offset this expense against VAT collected from from paying customers. VAT paid by charities is an out-of-pocket expense that can’t be recouped; a direct tax, paid to the government, which only increases as their operations – their charitable activities – expand.

For a charity, this 16% additional cost is a highly significant burden, an indefensible constraint on their capacity to do important work. Writing in The Jerusalem Post two weeks ago, Abraham Israel, the founder and director of the Hazon Yeshaya Humanitarian Network, described first-hand how the burden of paying VAT affects his charity:
“From every $6 million that I beg from my donors, $1 million disappears into the Treasury – the same Treasury that refuses to pay the cost of dental care for the elderly, school meals for children, welfare-to-work programs, or any other poverty-beating plan that you might care to recommend,” he wrote.
Poverty-beating plans that organizations like Hazon Yeshaya have come to offer in the government’s stead.
On top of this, charities that receive donations of equipment from abroad – medical equipment, computers and the like – also have to pay customs duties on these items.
JUST AS as the government in general, and the defense establishment in particular, expects the billions in annual foreign aid from the United States to arrive every year, tax free and on time, VAT and customs exemptions must be put in place so that charities running soup kitchens in development towns, or helping destitute Holocaust survivors, can spend the maximum amount of their donors’ money helping those in need.
Our legislators know full well that Israel wasn’t founded by bullets and plowshares alone; that behind nearly every unpromising patch of land reclaimed for agriculture, every second-hand assault rifle, and an untold number of welfare projects, stood an earnest donor, and the same remains true today. And few of those donors – be they bar mitzva boys or deep-pocketed machers – has a clue that the cause they have been helping is simultaneously struggling to give the government its unfair share.
It is an unfortunate reality that our overstretched government, even if it allocated its resources more effectively, would be hard-pressed to meet all the needs of the less fortunate members of our society. What the state must do, and urgently, is remove the untenable financial hurdles preventing those who are providing assistance from maximizing their capacity to help.