FEASIBILITY OF THE CHARITABLE TAX DEDUCTION INTRODUCTION

Anna P Kireenko,Sofia A Golovan

doi:10.15826/jtr.2016.2.2.019

Abstract

The article devoted to evaluation the influence of preferential tax treatment for charitable expenses of commercial organizations. The aim of the study is to prove that the introduction of tax incentives for charitable activities of commercial organizations will promote their charitable expenses. Banking sector’s organizations were selected for the empirical basis of the study; because the information about the charitable expenditure of other organizations is not available .The study has used a sample of 49 banks operating in Irkutsk Oblast as a constituent member of the Russian Federation in 2011-2014. The study sample was divided into three groups according to the principle proposed for the evaluation of social responsibility of banks in the United States. The current level of participation of banks in corporate philanthropy is evaluated in view of preferential taxation as a mechanism to reduce the cost of charitable services for the company. The study attempts to construct a theoretical model describing the effect of tax incentives for the financing of the charitable sector, as well as to find the optimal limit registration of charitable expenditure as an expense. It has also been found that, regardless of the charitable expenditures limit set as part of total expenses, the majority of credit organizations could exploit a maximum potential growth of donations (from 49,5 % to 74 % of the studied credit institutions, depending on the chosen accounting limit). It is concluded that introduction of preferential tax treatment might mean a possible rise in charitable expenditures, and the optimal level of charitable expenditure accounts as an expense in terms of budget efficiency is substantiated.

Highlights

Development of the organization’s socially desirable activities is the important element of social support during a growing crisis
Charitable deduction is generally determined as the preferential tax treatment of expenditures or gifts to organizations that the law qualifies as having a socially beneficial characteristic and for which the donor is not motivated by direct benefit when making the contribution
As the review of the literature has shown, over the recent decades the importance of searching for alternative sources of financing for non-profit organizations as providers of public goods and services in relation to the direct subsidies has been growing. One such source that has several advantages over direct financing is a mechanism for preferential tax treatment of charitable activities used in the Western countries

Summary

Introduction

Development of the organization’s socially desirable activities is the important element of social support during a growing crisis From this point of view the socially desirable activities of private organizations can provide viable alternatives to direct government programs. Taxation can stimulate this social activity trough the mechanism of tax deduction. The most widespread form of this preferential tax treatment is charitable deduction when taxpayers have been allowed to deduct gifts to charitable and certain other nonprofit organizations. Hereafter such organizations will be called «charitable» [1, p. The deduction is intended to subsidize the activities of private organizations that provide viable alternatives to direct government programs

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