Can the non-profitable organizations be exempted from taxation according to the Law of personal income tax?   A restrictive tax policy towards NGOs   Which kind of non-profitable organizations’ income is subject to taxation – is a frequently asked question by the non-governmental organizations, which are driven by their efforts to realize sustainability of their activities and relative financial independence. We have asked Dushanka Ilieva, manager of Taxes and Tax Policy Sector in the Ministry of Finance to explain it to us: “Non-profitable organizations which are registered and work in the Republic of Macedonia according to the Law of civic associations and foundations have a status of legal entities and therefore are not directly covered by the Law of personal income tax, through which the citizens’ (physical persons) income is subject to taxation. However, the citizens’ activities related to the non-profitable organizations, through which they realize their educational, cultural, social, physical and spiritual needs, are subject to taxation covered by this law. Thus, according to the Law of personal income tax, the sum of all kinds of income realized on any basis and by various resources is considered to be an income subject to taxation in the course of one calendar year. It implies that all activities carried out by physical persons (citizens), which result in realizing some incomes, are subject to taxation, except for the ones that are not exempted by the Law or any other regulation. In article 6 from the Law of personal income tax the incomes, which are not to be subject to taxation, are decisively stated, and with some other regulations the other tax exemptions and releases have been established. Among the relevant exemptions related to the NGO activities are the following: pupils and students’ scholarships and credits gained by foundations established by law; salaries, pensions and allowances for invalidity of disabled people; social allowances for children established by law, social protection help etc. In spite of the fact that the non-governmental sector activities are somehow an addition to the state functions in many areas, in the Law of personal income tax there are still no bigger releases nor exemptions, which would directly stimulate the non-profitable organizations’ activities. Thus, in the Law of personal income tax there are no regulations for tax exemption of income, which physical persons would donate to a non-profitable organization. Namely, in many countries the physical persons’ donations to these organizations are to a certain extent treated as income, which is not subject to taxation. In our country such decision has been established only in the Law of profit tax where the legal entities’ donation of up to 3% of the total income is not subject to taxation by the profit tax. Very popular is the decision in the Hungarian legislation where the donator has a right with a statement to the tax organ, to intend the tax, which he is to pay to the state (1%), for a concrete non-profitable organization that he wants to support financially. Thus, directly, through its own choice of organization, he promotes and develops culture, art, sports, the social and health system, religion or some other area he chooses. One of the frequent remarks concerning the Law of personal income tax is that it does not stimulate the activities of its members – volunteers in the non-profitable organizations. This results from the fact that according to the Law regulations, the allowance for travel and daily costs is exempted from taxation only for the persons who have a status of employees at the one who pays it. Thus, in the non-profitable organizations a part of the incomes purposed for the organization’s activities are spent for paying daily and travel costs taxes for the members volunteers. Giving various jubilee awards is not exempted from taxation, too, as well as some awards for certain achieved results (in competitions, at various sports, cultural, scientific manifestations of local character etc.). Namely, only the awards for life achievements in science, culture and sport have been exempted from taxation as well as the athletes’ awards achieved at official international competitions. Restrictiveness of such solutions is due to the constantly growing need for budget assets where the tax incomes have primary function, as well as the lack of regulation with precise determining organizations of public utility and of mutual utility, which will provide development of additional tax solutions which will stimulate the non-profitable organizations activities.”