A significant conference on civic organizations’ development has been held in Budapest

“Percentage philanthropy – 1% law”

The law impels organizations to become transparent and reporting towards the ones who have directed assets

“Percentage philanthropy – 1% law” was the topic of the conference held on 19th and 20th January in Budapest, organized by the Non-profitable Information and Training Center (NITC) from Budapest. Representatives of civic organizations, authorized state institutions and experts from more than 15 countries from the region and Europe (Hungary, Slovakia, Poland, Lithuania, Romania, Moldavia, Estonia, Slovenia, Croatia, Serbia and Montenegro, Bosnia and Herzegovina, Bulgaria, Holland, Great Britain, Macedonia) took part.

What is the 1% law? Why has it been adopted by some countries? What legal instruments exist in the countries that apply the law and what are their differences? How does it function in practice? What are the advantages of such laws? – were a part of the questions discussed at the conference, where there was an additional meeting organized for the participants of the countries interested in introducing the law. The participants were informed that on the basis of application and argumentation concerning the need for introducing the 1% law, NITC would provide technical support for initiating and implementing the law in three countries from the region.

In the existing form, the 1% law was for the first time implemented in Hungary in 1996, in order to impel the development of the civic society and civic organizations.[1] According to the regulations of this law, individuals have a right to direct a part of their personal tax towards civic (non-profitable) organizations that deal with realizing activities of public interest. Following Hungary’s example, similar laws have been passed in Poland, Slovakia and Lithuania. Taxpayers in Hungary can direct 1% of the personal tax in favor of certain non-profitable organizations, public foundations and public institutions. Additionally, taxpayers in this country can direct 1% towards religious organizations. All the potential users of the directed 1% have to meet certain conditions, among which is the necessity to realize an activity of public interest (Organization of public benefit). Taking into consideration the data that only a half of the non-profitable organizations in Hungary were given a support in this way, last year the Hungarian parliament passed a program for a National Civic Fund. The Fund is an instrument which is to provide further development of the institutional support of the non-profitable organizations, and it is a central state fund for which the government will give appropriate funds based on the amount directed by the taxpayers, in accordance with the tax which is directed annually on the basis of the 1% law (doubling directed assets). Therefore, the more assets the taxpayers direct, the more assets the government will give to the Fund. For an objective allocation of the Fund assets, a Council and regional colleges have been formed, comprising elected delegates from the civic sector.

Next country that has implemented the law is Slovakia. Since 2002 taxpayers have had a right to direct 1% of the personal tax to a certain non-profitable organization registered in the Chamber of notary public[2]. A right to receive directed assets have all legal forms of non-profitable organizations (civic associations, foundations, non-investment funds, non-profitable organizations that realize activities of public interest, churches, the Red Cross of Slovakia). After the successful implementation of the law, since 1st January 2004 novelties have been valid in the tax legislation that imply – a possibility for the legal entities who are taxpayers to direct 2% of the tax towards a certain legal entity, under the same conditions that are valid for the physical persons. Some exceptions have been projected with the new regulations and they refer to the minimum amount that can be directed.

Lithuania is the third country from the region that has applied this law, according to which the person who is a permanent resident of the country, has a right to apply to the tax administration for directing 2% of the personal tax towards certain users, stated in the Law for charity and sponsorship. Users can be charity foundations and foundations established to provide sponsorship, budgetary institutions, associations, public organizations, public institutions, religious communities and other legal entities who do not realize their activities for achieving profitable objectives unless the realized gain is allocated to the founders or members of the organization.

The Law for activities of public interest and volunteering in Poland also contains regulations that refer to the possibility for directing 1%. Similar to the above- mentioned three countries, according to this law, taxpayers can direct 1% of the personal tax towards organizations of public interest by their choice.

In December 2003 Romania joined the countries that provide directing 1% of the personal tax towards non-profitable organizations. Characteristic of the process of initiating and passing the Romanian “1%” is that firstly, it was initiated by the political sphere (the Liberal party), in close cooperation with the civic sector, and secondly, that the political party at the moment of initiating and passing the law was in opposition. The idea, and later the law itself, was accepted by the government and other parliamentary parties.

According to the so far experience, the greatest advantage of the law has exactly been the development of civic organizations and civic society, in general. The law impels the organizations to become transparent and reporting towards the ones who have directed assets, to be closer to the citizens and to take activities they are required to.

However, the experience has also shown that this law should not and must not be the only way of financing civic organizations. On the contrary, it should be complementary to the other tax releases. According to Nilda Bulan, a program manager of the European Center for Non-Profitable Law, the 1% law is only a mechanism, but insufficient for financing. The financial help is to be determined by the state for those non-profitable organizations that deal with state responsibilities, for example, health, or organizations that deal with social help. They should be given direct financial support, regardless of whether taxpayers want to finance them or not. Also, there is a third way of financing non-profitable organizations, it refers to the tax benefits for the civic organizations that should not be stopped”. As far as the tax reductions are concerned, in comparison with the countries from Central and Eastern Europe, Macedonia is almost at the bottom regarding almost all issues of releases, reductions and the treatment within all kinds of taxes. In order to get familiar with the significance, functioning and advantages of this law, and its possible application in our country, representatives of the Republic of Macedonia also took part at the conference. One of them was Slavko Lazovski from the Ministry of Finance, who considers implementation of the “Hungarian 1% law” to bring significant advantages in Macedonia. “This law would fit well into our tax system, and our tax administration would deal with it easily and successfully. As far as the fiscal side is concerned, the law would result in significant effects in the improved tax collections and in giving useful signals in directing budget expenses, and the citizens, for the first time, would immediately take part in declaring. I would like to point out that this law would make significant contribution to strengthening the fight for prevention of corruption, with strong effect for improved transparency in allocating and spending citizens’ money”.

The need for changes in the legal and fiscal frame for the civic organizations in the Republic of Macedonia is inevitable. Over the past ten years the greater part of the civic organizations in Macedonia have realized their cooperation and support with international organizations (donors). In the forthcoming period the civic organizations will have to use the so far experience gained by many taken activities in this direction, and more actively focus in search for domestic concepts and practices of the civic society and impelling their establishment.

Certainly, in that process, cooperation and support by the Government is necessary. The adopted “Action plan for implementation of the references from the European Commission report on stabilization and association of the Republic of Macedonia for 2003” (passed in June 2003), contains proposal-measures and activities that the Government is to take in direction of impelling and development of the civic society and it is an excellent basis upon which an overall strategy for cooperation and support of the civic organizations should be built.[3]          

Undoubtedly, the 1% law is an extremely attractive way of allocating budget assets, where citizens are the ones who decide, but it certainly is not the only one. Some other measures that will imply improving the conditions of civic organizations’ functioning are also necessary, such as:
-         existence of a defined governmental policy for support of the civic organizations;
-         a dialogue among the civic organizations and the government about their priorities;
-         finding out appropriate mechanisms for successful implementation of the defined priorities.



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[1] The roots of this law are from Germany and Austria as a church law, or directing a part of the tax by the taxpayers to support the church, as in Spain and Italy.

[2] With the modifications of this law, starting from 2004, taxpayers will be able to direct 2% of the personal tax.

[3] Proposed measures and activities in this part are the following: Modifications of the Law for civic associations and foundations; Implementation of tax reductions for the civic associations; Passing a strategy for development of the civic society and NGO; Passing a program for cooperation with NGO; Opening an office of the Government of the Republic of Macedonia for cooperation with the non-governmental sector; Forming a centre for NGO support; Passing a decision for support of non-governmental organisations – July 2003.

The Ministry of Justice has already prepared proposal-modifications and amendments of the Law for civic associations and foundations and there has already been a public dispute on this issue.