Tsvetelina Sokolova, Mediapool, 8 May 2025
A change in Romanian tax legislation more than 20 years ago has worked wonders! It was not ‘concerned’ politicians, but a civic association, Dăruiește Viață (Give Life), that managed to build from scratch and equip a new nine-storey national children’s hospital in Bucharest and help the health sector in many Romanian cities. How? Largely thanks to the possibility offered by Romanian tax legislation for working people to redirect 3.5% of the income tax they pay to a civic association of their choice with a relevant cause.
However, the success of the Give Life association is not limited to the construction of the children’s hospital. The real change is the promotion of a culture of giving in the Romanian civic sector in general and its establishment as an entity that can bring about positive change in Romanian society, correcting or complementing the role of the state and the business community in terms of public services.
Civic causes do not have a ‘business’ model
Many people in Eastern Europe, especially in Bulgaria, are dissatisfied with democracy because they feel cheated by the good life it has never brought them. However, few realise that democracy is not just about going to the polls once every four years and complaining in the pub about bad politicians. It is above all daily work and a struggle with institutions and problems to improve all spheres of life. But who is fighting this fight for the common good on a daily basis?
In developed democratic societies, it is the citizens themselves, united in various associations – for better healthcare, education, a clean environment, consumer rights, but also for intangible causes such as human rights, fair play without corruption, investigative journalism, etc.
However, the big problem with civil society associations is that they do not have a ‘business model’, i.e. there is no economic and market basis for their existence. The reason is clear: none of the ‘people with money’ in society has a direct interest in financing their activities. The official authorities do not need associations that are constantly dissatisfied, make noise, criticise irregularities in the state and lower political ratings. Nor is the business community interested in ‘feeding’ someone who will reproach them and spoil their profits.
The only people who have a direct interest in funding public benefit associations are ordinary citizens, who, paradoxically, for various reasons, mostly do not make voluntary donations: either they believe that it does not affect them because politicians should fix the state, or it does not work, or they do not trust civic associations themselves, either they do not have money to spend, or they simply have not thought about it and do not have the habit or motivation to do so.
Should we then shut down civil society? In consolidated democracies, the answer is a clear no. Western societies are much more aware of charity, volunteering and membership of various associations that improve their lives. This is true for ordinary people as well as for the business elite of societies – the wealthiest who are aware of their role as ‘parents of the nation’ and support charity as a personal cause.
The good news is that there is hope in Central and Eastern Europe, where awareness is still lower. Several countries in the region have introduced a rescue mechanism for public benefit associations – redirecting a percentage of the annual personal income tax (PIT) paid – for example, 1.5%, 2% or 3.5% – to a public benefit association chosen by the taxpayer.
The mechanism works successfully in Romania, Poland, Moldova, etc. On the one hand, it ensures the sustainable financing of the civil sector with the money of those who have the greatest interest in its existence – the citizens themselves. On the other hand, it operates on the principle of the market and competition with unquestionable legitimacy, as each taxpayer votes with their money for the specific association to which they redirect it.
In Spain, taxpayers have the option of redirecting 0.7% of their tax to the Catholic Church and another 0.7% to social causes. There, the mechanism is more of a remnant of centuries-old traditions of church financing. In Austria, as in Bulgaria, however, such a system is completely absent.
In Romania, people redirect 3.5% of their taxes
In Romania, the mechanism for allocating a portion of income tax (initially 1%) for the financing of the civil sector at the discretion of individual taxpayers was introduced through amendments to the Tax Code in 2003. In 2005, the percentage was increased to 2%.
To date, the Romanian tax authorities allow up to 3.5% of income tax to be redirected to non-governmental organisations (NGOs), churches or private scholarships by means of a declaration (form 230), and recently a condition was introduced that the tax paid must relate only to income from salaries and similar remuneration and not, for example, to other types of income such as rent.
When redirecting money to an association of their choice, taxpayers do not incur any additional costs, as the amount would otherwise go into the general state budget. Personal income tax (PIT) in Romania, as in Bulgaria, is 10%.
The taxpayer may designate one or more associations to which they redirect their funds, but the total amount may not exceed 3.5% of the income tax paid by them for the year in question.
The redirection is made by submitting tax form 230, which is sent either to the tax authority ANAF or to the beneficiary (NGO, church, etc.).
The deadline for submission to the tax authority is 25 May of the year following that in which the income was obtained. The document can be submitted in person, by post or via the electronic services portal. Within the same deadline, associations are required to send the tax authorities, by electronic means, the forms they have received directly from citizens.
Although every active citizen in Romania has the right to redirect 3.5% of their tax to a specific cause, only 29.93% actually do so, according to data from the civil association Salvați Copiii România (Save the Children Romania). Thus, the funds of the remaining 70% of workers who do not take advantage of this opportunity automatically remain in the state budget.
According to current data from the Romanian National Agency for Fiscal Administration, approximately 1.9 million Romanians have chosen to redirect 3.5% of their income tax to NGOs and religious institutions. This number has increased slightly compared to the previous year, but is still far from the pre-pandemic level, when over 2.1 million Romanians (a six-year high) chose to exercise this option.
The model is also working successfully in Poland
Poland also has a mechanism for public funding of civil society, Spasimir Domaradzki, a political scientist and lecturer at the University of Warsaw, told Mediapool. Domaradzki is a Bulgarian who has lived and worked in Poland for many years.
“Indeed, in Poland there is also a mechanism that allows each taxpayer to redirect 1.5% of their annual tax to a public utility organisation. The mechanism was introduced in 2004 and until 2023 only 1% could be redirected, but from 2023 the percentage is now 1.5%,” said Spasimir Domaradzki.
According to him, not every NGO can receive public funding, only those that obtain the status of a public benefit organisation. This status is granted by the court and registered in the Register of State Courts.
In addition to funding through personal income tax, public interest organisations benefit from a number of other tax and administrative exemptions – they are exempt from many state and court fees, property taxes, are eligible for rent reductions, advertising in public media, etc.
There are also a lot of obligations – strict financial reporting, internal controls. These organisations are not allowed to make a profit, and employees cannot earn salaries higher than the national average. There must be no convicted persons in the management bodies, etc. To obtain this status, the organisation must have been in operation for at least two years. There is a state institute for civil society that acts as a monitoring body.
“The system is extremely efficient. Last year, approximately 1.9 billion zlotys (approximately 900 million levs, 2.285 billion Romanian lei) in taxes were redirected to the NGO sector, which shows what kind of money we are talking about. Given that taxes in Poland are paid by the end of April, at this time of year, wherever you turn, you see posters inviting NGOs to redirect 1.5% of your tax to them,” says Spasimir Domaradzki.
The thematic scope of public benefit organisations is very diverse, ranging from organisations in the fields of education and health to the media. ‘Even large private media outlets in Poland are also setting up foundations or associations, and these can also apply for funding from citizens. With this money, they do journalism in the public interest,’ says the professor.
He cannot recall any major scandals or problems related to public funding of civil society in Poland. The reason is that organisations strive to comply with the law because there are controls in place and losing their public benefit status would be fatal for their survival.
Prof. Domaradzki believes that a similar mechanism should be introduced in Bulgaria. ‘When you pay your taxes and have the opportunity to decide where 1.5% of them should go and you can choose who to give this money to, a number of issues that in Bulgaria are always a matter of last-minute public mobilisation, for example for aid or treatment for children, can be resolved much more easily,’ says the political scientist.
In Bulgaria, the Romanian model would cost to the budget 280 million leva (143 million euros)
In Bulgaria, it is currently not possible for an individual to decide to redirect part of their annual tax to a specific cause or organisation – for example, to civil society organisations, public interest journalism, the church, education, sport or something else.
Civic organisations are left to finance themselves as best they can (but not for profit). Many people do not donate and do not approve of donors from other democratic countries financing civic organisations in our country. Thus, the civil sector, which is crucial for a young and fragile democracy such as Bulgaria’s, is left to fend for itself in an environment where there is no established culture of regular donations to public causes or charity.
This year, the budget is expected to collect nearly 8 billion leva in personal income tax. With an average salary of 2,468 leva (1,262 euro) (for December 2024, b. r.), the income tax that a working person will pay during the year is approximately 2,500 leva (1,278 euro). If they are entitled to redirect 3.5% of this (as in Romania), this means that 87.50 leva (44.75 euro) can go to a social cause.
If 100% of people took advantage of this opportunity, the annual cost to the budget would be 280 million leva (143 million euro). In Bulgaria, there are approximately 3 million income tax payers, of whom approximately 2 million declare income from employment.
In Bulgaria, at this stage, there are tax exemptions for donations if they only reduce the tax base, but the donation itself is a voluntary act. Individuals can make donations in exchange for tax exemptions only to organisations explicitly listed in the law. This list was significantly narrowed a few years ago because abuses involving fictitious donations were detected years ago.
Currently, Bulgarian law allows the tax base for donations to be reduced by up to 65%. For donations to the National Health Insurance Fund for the treatment of children, the tax base can be reduced by up to 50%. The tax base can be reduced by up to 15% for donations to culture and by up to 5% for the following donations (in Bulgaria or other EU countries): to hospitals, nursing homes, schools, universities, churches, the Red Cross, NGOs, drug addict communities, the Energy Efficiency Fund and UNICEF. Tax relief is not possible if the donation is intended for a specific person, so that there is no abuse.
In Austria, tax is not redirected
In Austria, as in Bulgaria, citizens cannot choose whether part of their tax is redirected to a specific purpose. In 2012, Sebastian Kurz, who later became federal chancellor, proposed as state secretary that 10% of tax be allocated to specific causes such as education, infrastructure or social services. However, the proposal was widely contested and rejected.
Nevertheless, Austria has a tax deduction under which up to 10% of the tax base can be reduced for donations to charitable organisations. These include scientific and research institutions, fire services, museums, churches and other religious organisations. It is important that the organisation is classified as a charitable organisation by the Treasury. There is an online list of these.
Since 2017, these donations no longer need to be declared in the tax return, as the charitable organisation itself registers and reports the donations directly to the tax office, and these are automatically included in individuals’ tax returns.
Tax relief in Estonia
In Estonia, there are specific tax reliefs for some NGOs – those that obtain the status of a public benefit association.
There are several conditions: they must work in the public interest, for charitable purposes or provide a product or service free of charge, they must not make or distribute ‘profit’, they must not have unnecessary and unrelated expenses, and the remuneration of the association’s employees and managers must not exceed the salary for similar work in the business sector.
Special status is refused or lost if the association does not comply with Estonian law, does not operate in accordance with its statutes, does not have a history of at least 6 months, has not submitted activity reports, if it advertises another private business to its owners or donors, if it engages in political activities or supports a private interest (e.g. a particular professional community if it is a trade union), etc.
*Mediapool states that it is also funded and operates on the principle of NGOs.
This article was produced as part of the PULSE project, a European initiative supporting cross-border journalistic cooperation. Contributors include Țvetelina Sokolova, Mediapool (Bulgaria); Dan Popa, HotNews.ro (Romania); Kim Son Hoang, Der Standard (Austria), Lola Garcia Ajofrin, El Confidencial (Spain) and Daniel Vaarik, Levila.ee (Estonia).
Photo: (source: Pixabay, CC0)
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