Over the last week issues have been highlighted in the press regarding support for political parties by the non-profit sector, particularly public benefit organisations. Even the churches have entered the fray, with the obvious example being Rhema, which is classified as a public benefit organisation. According to the tax laws, it should not be supporting, directly or indirectly, any political party.
The clause in the Income Tax Act that governs public benefit organisations says “The Commissioner (for the South African Revenue Service) shall, for the purposes of this Act, approve a public benefit organisation which — has not and will not use its resources directly or indirectly to support, advance or oppose any political party”.
The United Democratic Front (UDF) in the 1980s was made up of a huge number of non-profit and tax exempt organisations who opposed the National Party, its policies and the National Party government. The stimulus to the formation of the UDF was opposition to the formation of the tri-cameral parliament — this was National Party policy, not government policy, and organisations were legally free (even then) to oppose this move.
Under existing legislation, this might not be possible, depending on what definition is used for the term “political party”.
If we visit the Electoral Commission Act, No 51 of 1996, we will see that it provides definitions for a “party” and a “registered party”. A “party” means any registered party, and includes any organisation or movement of a political nature which publicly supports or opposes the policy, candidates or cause of any registered party, or which propagates non-participation in any election. A “registered party” means any party registered in terms of section 15 of that Act.
If we are faced with the definition of “party”, this really opens up the flood gates. Could a public benefit organisation actually be a political party?
In my mind, The Treatment Action Campaign, a public benefit organisation that opposed the ANC’s Aids policy, could have been classified as a movement of a political nature that publicly opposed the policy of a political party. Would a movement, such as the United Democratic Front, now be classified as a political party made up of hundreds of public benefit organisations who might all illegally be giving support to such a political party?
If public benefit organisations are not allowed to support, advance or oppose a political party, more questions arise. Does this mean generally, in elections, or in their activities? The Income Tax Act allows for public benefit organisations to engage in activities such as promotion of advocacy, human rights and democracy. In that case they might come head-to-head with a political party.
In terms of the legislation, however, there is little space to oppose a political party’s policy relating to land, housing, health and education unless these are deemed to be advocacy relating to human rights.
The question arises as to how constitutional is the clause in the Income Tax Act?
The constitution says that every citizen is free to make political choices including “to campaign for a political party or cause”. Our constitution in general applies to not only individuals (natural persons), but also to organisations (legal persons) and we have the right to freedom of association and freedom of expression. Are these being undermined by the clause in the Income Tax Act that prevents organisations from opposing political parties?
In the light of our constitution, we could then ask what social/advocacy/developmental agenda does not impact on politics? How can public benefit organisations engage with these issues without supporting or opposing political parties?
So one must therefore ask, how did this clause in the Income Tax Act slip through?
A review of the tax legislation for non-profit organisations was part of the brief of the Katz Commission that released its Ninth Interim Report in 2000. It did not make a recommendation to exclude political activities under the term “public benefit” and, in fact, recommended that new legislation on public benefit organisations should contain a schedule listing eligible public benefit activities which could include, amongst others, politics, public policy and advocacy. This culminated in the Tax Revenue Laws Amendment Act of 2000, which did not contain the current limitation on political support. Appendix 1 of the Ninth Interim Katz Report referred to a strikingly similar prohibition found in German tax legislation stating “the non-profits are explicitly prohibited from using their funds or resources for the direct and/or indirect support of advancement of political parties”. No mention of a prohibition on opposing political parties was included.
The new prohibition on political support or political opposition came about in the Taxation Laws Amendment Act of 2002. There is no indication that this clause was debated in parliament or that presentations were made to a parliamentary portfolio committee.
However, it did apparently follow a visit to the US by bureaucrats from the South African Revenue Service in the post-9/11 period. This clause has major ramifications for our democracy and our public representatives have let down civil society by allowing this through without a comment. Given its widespread implications, there is also less certainty on how this clause will be enforced by the commissioner, given its wide meaning.
The commissioner is faced with having to enforce this clause in its entirety or parliament could consider revising it to provide more certainty to public benefit organisations, their supporters and to political parties. This will open up the debate in a transparent way and South Africa can decide whether its civil society is free to oppose political parties and to what extent it can support political parties without creating a conflict of interest.
Where does all this leave the donors and philanthropists? They are a crucial part of the continuum of activism — donor to public benefit organisation to beneficiary. This makes it even more critical for donors to ensure that they get to know and understand the work of the organisations that they support, especially if they are involved in advocacy relating to their cause.