The Kremlin is preparing a new law to encourage big business to give more to charities and social projects. The Bill, which will allow the creation of charitable endowments with special tax privileges, is being hailed as a milestone by the country’s fledgeling charity sector.
However, President Putin’s move comes amid pressure for the Kremlin to spend some of its $70 billion (£37 billion) petro-dollar fund on social projects. Mr Putin has been criticised for failing to pass on the lucrative returns of Russia’s enviable oil and gas reserves to the Russian public.
At the moment, charitable donations and charities receive no special tax privileges, which experts and donors say discourages philanthropic activity.
Alexander Lebedev, a billionaire philanthropist who recently gave £100 million to the Raisa Gorbachev Foundation for children with leukaemia, said: “The present situation definitely needs to be changed. When I give money, I pay tax. When a charity receives it, it pays tax. And when it disburses it, it pays tax. So you lose 10 to 20 per cent of the donation in taxes.”
Under the new law, those charitable funds that meet the definition of endowment will not be taxed, and will not have to pay VAT when they disburse their funds. Several top-ranking bureaucrats, including Dmitri Medvedev, the Deputy Prime Minister and a possible successor to Mr Putin, have held meetings with potential donors and charities to discuss the Bill.
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Natalya Kaminarskaya, executive secretary of the Donors Forum, a leading lobby group for the Russian non-profit sector, said: “It’s the first time in history there’s been such consultation with the private sector and the non-profit sector over such a Bill.”
The depth of consultation with interested parties over the law stands in marked contrast to the law on non-commercial organisations that the Government passed last December, amid much criticism from foreign governments and Russian civil society. That law was aimed at improving the transparency of foreign money supporting Russian society.
Mr Putin claimed that the law was necessary because foreign secret services were secretly funding non-governmental organisations (NGOs) to work against the Russian Government. The law, which requires NGOs to go through highly bureaucratic registration procedures and allows the Kremlin to close any NGOs whose activities it deems go against “the Russian identity”, has already caused Russian NGOs a serious headache.
Under the new law on endowments, by contrast, human rights organisations and youth groups do not qualify for tax breaks. The law will apply only to organisations involved in education, science, healthcare, culture and art and social support — in other words, areas where the Government usually provides services. Ms Kaminarskaya said: “There is no discussion yet of which areas should be the obligations of the State, and which of civil society.” Philanthropic activity is growing in Russia, as the economy grows by rates of about 6 per cent annually, but it has an unusual character. Analysts say that as much as 80 per cent of donations are more or less bribes to the Government. One analyst said: “Quite often the Government says ‘build a school here’ or ‘support this museum’, and big business naturally agrees, because they are afraid of retaliation.”
Indeed, one charitable fund, called The Friends of Chechen Reconstruction, has been making the rounds of Chechen businessmen in Moscow, demanding that they give $1 million to help to support the reconstruction of the republic run by the controversial local strong-man Ramzan Kadyrov.
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Another example of such donations by diktat is the billion-dollar development of the Sochi ski resort, where the Government hopes to hold the 2014 Winter Olympic Games. Big business, including Gazprom and Interros, has more or less been ordered to help the bid by building hotels, ski lifts and other amenities.
It is not clear if the Government will stop with the new endowment law. It has also been discussing the introduction of a new “philanthropic tax” on big business, to make charitable donations mandatory. Experts from the charity sector say that the new Bill is too bureaucratic, but nonetheless they welcome it as an important milestone. Ms Kaminarskaya said: “It’s a significant step forward in the development of philanthropy in Russia. If even a few transparent endowments are created, it will create a position from which we can negotiate with the Government further.”
The new law will stipulate that the endowments are at least 3.5 million roubles (£69,000) in size and that they are invested into the market by professional fund managers, which eventually could be a lucrative market for fund managers working in Russia, such as Société Générale and Raiffeisen International.
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