ROMANIA: Individuals can redirect 3.5 percent of their income tax to NGOs but only for those in social services – only partially good news

Thanks to the Ordinance 25/2018 passed by the Government at the end of April, private citizens will be able to redirect 3.5 percent of their income tax to non-governmental organisations registered for social causes. Moreover, micro-enterprises sponsoring these NGOs will be able to deduce up to 20 percent of income tax.

The 2% mechanism came under the spotlight in 2017 when the government attempted to replace the system with the new tax reform. According to Andrei Pop from the Civil Society Development Foundation, under the current system “people can choose whether 2% of their taxes goes to the state, with the other 98%, to a non-profit of their choosing.” However, with the proposed taxation system, “the 2% tax redirections towards NGOs would have entered in the same pool of deductions with the taxes for private school, for attending the gym or for buying educational materials for your kids. In this case, the 2% mechanism would have become inoperable, since anybody would have easily found reasons to replace donating to an NGO with buying something really important for their family.

Only in 2017, over 1.8 million Romanians used 2 percent of their income tax to support a non-governmental organisation, for a value of over RON 200 million. Such a move would have put the financial sustainability of most NGOs at stake. Finally, the provision was not part of the tax reform adopted in 2017. Nevertheless, according to an article by Romanian Business Review, “due to the fact that as of January 2018 the income tax quota has decreased from 16 percent to 10 percent, the value of the sponsorship has been reduced by around 40 percent. The increase to 3.5 percent is meant to offset this drop in value.”

On this new measure, Andrei Pop commented: “It’s a good news, only partially though. […] the fact that only the social service providing NGOs benefit from this increase is not really healthy. There are a lot of social NGOs who do not have their services officially acknowledged by the state and they do not benefit from this increase. Even more, the non-social service NGOs are likely to get less people redirecting them 2%. Given the opportunity to redirect more of his/her taxes, a citizen will be more tempted to choose a social service NGO for the annual redirection. Thus, the rest of the NGOs will be at a disadvantage.

A similar opinion was also expressed by Madalina Marcu, Resource Development director of the Association for Community Relations, who stressed that the changes should be valid for all NGOs. She said: “There are over 40,000 active non-governmental organizations in Romania that provide services that are absolutely necessary in many areas, such as medical, education, and the environment. There are areas in which the state does not intervene, and therefore the work of these organizations, which is highly dependent on these tax facilities, is paramount.”