Creating Enabling Regulationfor Indonesia Philanthropy

Hamid AbidinAssociation of Philanthropy Indonesia

Philanthropy and Tax Regulation in Indonesia

• Philanthropy in Indonesia is growing rapidly in the last 15 years driven by the freedom of association, the economic crisis and natural disaster

• The development of philanthropy is not supported by the provision of a conducive legal environment, particularly tax incentives.

• Indonesian Tax laws do not recognize the principles of nonprofit organisations as organisations exempted from corporate revenue taxes .

• Tax incentive policy in general is unclear and largely implemented on an ad hoc basis within the framework of disaster management

• In the 1980s tax law provided tax exemption incentives, but did not impose tax deduction incentive for donors

• In 1994 government terminated tax exemption because there had been abused in practiced

• in 2000 the government provided tax deductions for individuals who give donations in the form of zakat (alms)

• This policy is considered discriminatory because only acquired by the moslem taxpayer

Background of Advocacy

• On 31 August 2005 the government planned to reform the tax law proposed five Bills on Taxation to the parliament (DPR).

• Some NGOs, corporate foundations, family foundations and corporations recognised the tax reform as an opportunity to propose tax incentives for philanthropy and non profit sector

• They met and agreed to form coalition with the name “Indonesia Society Supporting Tax Incentive" and pointed to Association of Philanthropy Indonesia (PFI) to be the coordinator and managing coalitions

• Coalition members then met to discuss the stages of advocacy, determine job discription, and mobilized supports and resources to strengthen coalition agendas

Coalition Members1. PFI (NGO)2. Kehati Foundation (NGO)3. PIRAC (NGO)4. LP3ES (NGO)5. Yappika (NGO)6. PSHK (NGO)7. TII (NGO)8. YMM (NGO)9. Tifa Foundation (NGO)10. IFFPR (NGO)11. Sampoerna Foundation (Corporate Foundation)12. IBL (Corporate Foundation)13. CFCD (Corporate Foundation)14. Ogilvy Public Relation Worldwide (Corporate)15. PT Bogasari Sukses Makmur (Corporate)16. Metro TV (corporate/ media)

Budget Limitation: The Challenge

• Public, corporate, and philanthropic organization has not been provided support on advocacy activities

• International donors generally supported advocacy programs was not interested in the issue of taxation

• The advocacy was expected to last longer (3 years) and required consistency, strong commitment and large amount of resources

• The coalition tried to overcome the challenge by identified the stakeholders who have an interest in this law and mapped some alternative supports and resources

• They mobilized supports and resources in the form of inkind (meeting places, meeting consumption, experts for research and legal drafting, the draft of the campaign, etc.)

• To minimize operating costs, all coalition members are committed to working in a voluntary scheems

Working Group Job descriptionWorking Group Job description• Drafting Team: (PIRAC, PSHK, LP3ES, MUCDrafting Team: (PIRAC, PSHK, LP3ES, MUC))

– Conducting research and preparing working paper about the tax bill

– Formulating draft counter / alternative– Presenting the results of studies/ draft counter in various forums

• Campaign Team: (Ogilvy PR, Tifa Foundation, Sampoerna Campaign Team: (Ogilvy PR, Tifa Foundation, Sampoerna Foundation, Bogasari, YMM, metro TV)Foundation, Bogasari, YMM, metro TV)– Packaging and distributing the information in the form of fact

sheets, press releases, brochures, public services ads., etc– Asking individuals / experts to speak and write their responses and

opinions about the tax bill draft in the medias– visit to the media and hold press conference – Conducting seminars, workshops, talk shows and invited the

media to cover them• Lobby Team: (Kehati, IBL, TII, Yappika, IFPPR)Lobby Team: (Kehati, IBL, TII, Yappika, IFPPR)

– Mapping & Targeting lobby: Parliamentarian, government officials, boards of Foundations, other stakeholders affected by tax bill

– Conducting formal and informal meeting to discuss the tax bill draft– Aproaching the public figures to convey the coalition proposalsAproaching the public figures to convey the coalition proposals

The Coalition Proposal• Creating Definitions About non-profit organizations

and tax exempt non-profit organization in the tax law draft. This definition is not listed in the previous tax regulations

• Added New Articles About Tax Incentives and the procedures. These not regulated in the Tax Law draft

• Extending the tax exemption incentives to active and passive income generated by non-profit organization

• Added New Article About Tax Deductions incentives For individual and institutional Donors

• Added explanation on the scope of programs/ issues catagorized as tax deductable income

Advocacy Result: Tax Law No.26/ 2008

• The Tax law provide tax exemption for: – donation in general– zakat (alms) that distributed in Zakat Institution established or

othorized by government– Income generated by social institution handling education and RD

(research and development) programs • The tax law provides tax deduction only for donation in the fields of:

– National Disaster– Education– Research and development– Social infrastructures – Sport

• The next Agendas: Procedure and Mecanisme The government has not determined the procedures and

mechanisms in obtaining tax incentives. These provisions will be stipulated in other government regulation

Lesson LearnedLesson Learned– Strengths:

• Solid team• Not recognized as international donor agenda• Work processes are transparent• Solidarity among the core group• Strong coordination• Involving many parties (NGOs, Corporate & Universities)

– Weaknesses: • Unsignificant Public support• Too academic position paper• The team performance was not optimal and slow lobbying• Campaign and lobby team less synergistic• Jakarta centric: not involve stakeholders in other provinces• Media did not see tax incentives as major/ priority issue• Parliamentarian did not recognized the urgency of tax

incentives.