Russian tax reform bill covers too narrow a range of NGOs

NGOs, lawyers and the Public Chamber talk about preparations for tax reform


Experts have been giving their views on draft legislation being discussed in the State Duma to exempt some organisations from tax, explaining the changes they would like to see made to the Bill and why these should be discussed at its next reading.

The Russian Parliament has introduced a Bill that would exempt social service providers, those that offer socially useful services and NGOs which have received Presidential grants, subsidies and other grants under various Government schemes since 2017 from some taxes and insurance premiums. The legislation would also exempt charitable donations made by businesses from tax.

We will work without tax allowances for the good of those in our care

It appears that a lot of NGOs are not getting the support they were promised by the State. Anastasia Cherepanova, Director of the “Life as a miracle” charity, told the ASI that her foundation only exists thanks to the support of hundreds of people and that it has never received a Presidential grant. The charity also doesn’t meet other criteria mentioned in the Bill. When the pandemic began, the charity did not sit on the side-lines but started raising money in order to buy Personal Protective Equipment (PPE) for doctors.

“We’re trying to make savings wherever we can. We have individual donors who make a contribution towards our salaries and put special arrangements in place to carry out our administrative responsibilities. However, the NGO exemptions outlined in the Bill don’t affect us so our situation will remain more or less unchanged. We will continue to work without the benefit of allowances for the good of those in our care”, said Cherepanova.

The Konstantin Khabensky Foundation told the ASI that it too would not be on the list of those receiving support. It will back the Bill provided business cash donations are exempt from tax. The Bill as currently drafted states that income from assets transferred from businesses to SONGOs will be exempt from tax. But what the law-makers understand by the meaning of “assets” is unclear.

“The Government’s support measures are undoubtedly a positive step forward in promoting the role of Russian NGOs during the coronavirus pandemic. Of major importance to NGOs is that the Bill allows legal entities who make charity donations to receive tax relief. This could provide much needed impetus for charities in attracting new funding. We believe the Bill should clarify the definition of “assets” and recognise that “money” is one of the elements associated with the meaning of “assets”, said a Foundation spokesperson.

Help was needed back in April

NGOs which could receive tax benefits have given the Bill a cautious welcome. “We have been waiting for the support measures since April. However, it’s very difficult for me to comment at the moment because I have no real idea as to when and how any assistance will be provided”, said Anna Mezhova, Head of the Orenburg “Staying alive” charity.

The charity has been successful in Presidential Grants’ competitions in the past and is likely to be exempt from paying tax and insurance premiums. However, Mezhova has warned that her employees are struggling to cope with a workload that has increased dramatically during the COVID-19 pandemic. Direct payments are needed now in order to support its staff and bring in extra people to help.

“Carers working in very challenging circumstances and suffering from increased levels of stress are coming to us for help, as are children who have been the victims of violence or are survivors of major psychological trauma. They are very scared by what’s happening around them and are in real need of psychological help and support. It’s heart-breaking when a grandparent rings in the middle of the night and tells you that their grandchildren, who have lost both parents, can’t sleep and are crying because they’re worried that their grandmother is going to die tomorrow. We’re also receiving calls during the day from people who have lost their jobs and are unable to feed their children. I’d really like to invite those who are taking so long to make a decision on providing help to spend a week with us to see how people in the provinces are actually living”, said Mezhova.

Both yes and no

Ekaterina Bermant, Director of the “Children’s heart” foundation and founder of the “Shop of joy” charity shop, has told the ASI that her shop could be included on the list of benefit recipients. “We offer social support and have received Presidential grants in the past. It will be interesting to see how this tax benefit is applied in practice”, she said.

However, the “Children’s heart” charity has never taken part in grants competitions. “We fund our own work, that is we do exactly what the Government itself should be doing. We would have received support had our infrastructure projects been put in place at the beginning but for the most part we provide targeted assistance”, said Bermant.

Bermant added that it would be more appropriate for the Government to judge organisations based on the results of annual audit competitions, rather than “Ministry of Justice audits”.

Be a provider of socially useful services to help donors

The Bill also exempts business charity donations from tax on profit (i.e. no more than 1% of revenue). However, only those legal entities that support NGOs included on the list of tax benefit recipients or medical NGOs will be able to claim tax relief.

Ekaterina Shergova, Director of the “Gift of life” charity, spoke of the need for business incentives last year when the Ministry of Economic Development launched its draft Concept for the Promotion of Charity to the Year 2025. Shergova also raised this issue at an NGO meeting with Dmitry Medvedev.

“People are listening to us. However, companies who donate to our charity and larger ones such as the Konstantin Khabensky Foundation, “Living”, “Nastenka” and “Children’s hearts” are not covered under the draft legislation and will not receive tax relief. “The Gift of life” charity also does not qualify for NGO allowances. We do not meet the criteria outlined in the Bill. We have not received any State grants, nor are we included on the register of socially useful service providers or on the list of social service suppliers”, said Shergova.

Shergova also stated that her charity will need to be included on the register of socially useful services to allow donors to receive tax relief and will do all it can to do so. “We have never felt the obvious need to go on the register despite many of our projects falling within the definition of such status”, she added.

The Bill needs to be amended

The “Gift of life” charity and the “Everyone Together” Association have submitted comments on the Bill to Elena Topoleva, Chair of the Public Chamber’s Commission on the Development of the NGO Sector and Support to SONGOs. In particular, they want the list of SONGOs which can receive tax benefits extended. It is always possible to make informed judgements on an NGO’s capabilities and integrity but unfair to limit their role solely on the basis of registers and grants, they said.

“We recommend that the register also include SONGOs for whom a reduced insurance premium (20%) should be set. They should also have been State-registered for at least three years; have submitted annual audits for the last three years (if such a requirement was necessary); ensured their statutes are in the public domain; prepared audit reports filled out on ON0001 and ON0002 forms for the past three years and posted on the regulatory authority and NGO websites, as well as having provided open information on their management and staff structures”, said Shergova.

A view from the Public Chamber

For its part, the Public Chamber has sent a letter to Vyacheslav Volodin, Chair of the Russian State Duma, asking for a number of points to be taken into account when finalising the Bill.

It has proposed expanding the list of NGOs to receive support and to add the words “and other organisations agreed by the Russian Government”. According to Public Chamber experts, the suggested wording now “narrows down a set of categories for SONGOs that have suffered during the worsening pandemic situation”. According to the Public Chamber, in the list of Presidential Orders (No. Pr. 791) it states that around 20,000 NGOs would be able to apply for new tax benefits and preferences which is “considerably lower than the number of organisations currently operating and in need of support”.

The Public Chamber also drew attention to the following: The Bill exempts companies from paying tax on the assets they transfer to NGOs but it does not exempt NGOs from paying tax when they take possession of these assets. The Bill does not include a clause that allows NGOs to treat the value of non-repayable assets as income not taken into account in determining the tax base for income tax.

In its submission, the Public Chamber wrote that SONGOs will be obliged to take into account the value of assets received from commercial organisations in determining the tax base for paying tax on income.

Experts from the “Lawyers for Civil Society” organisation argued that the Bill be amended to allow SONGOs that receive non-repayable assets not to take their value into account in determining the tax base for paying income tax. The full text can be seen on:

The Public Chamber also noted that the Bill has not said anything about amendments that establish special accounting rules for calculating VAT paid on the transfer of assets to charities but has requested that appropriate amendments be submitted.  


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