GST Levy on Charitable Organisations

Date: 18 May 2010

Parliamentary Question by Mr Seah Kian Peng:

To ask the Minister for Finance (a) what is the amount of GST that has been levied on and paid by charitable organisations arising from donations in kind received by them in the last 5 years; (b) what is the rationale behind such a policy; and (c) whether this is an impediment to philanthropy activities and against our strategy of growing Singapore as a philanthropic hub.

Reply by Finance Minister Tharman Shanmugaratnam:

1. The Goods and Services Tax is a tax on the consumption of goods and services in Singapore. Any person, including a charity, has to pay GST on goods or services from a GST registered supplier, regardless of whether the good or service is bought or donated. This ensures tax neutrality between donations in cash or in kind. Take the example of a charity that wishes to obtain a donation to purchase furniture costing $1000 plus 7% GST, or a total cost of $1,070. If the charity were to seek a cash donation, it would need a cash donation of $1,070 to purchase the furniture. If instead it secures a donation in kind from a furniture supplier, it would obtain the furniture that costs $1,000 plus a 7% GST charge. The 7% GST arising from the donation in kind would have to be accounted by the furniture supplier, who can charge it to the charity – as if it is a customer – or bear it on behalf of the charity. Either way, the total cost (including GST) of the donation in kind is $1,070. The value is the same in both cases, regardless of whether the donation is in kind or in cash (which could indeed be a cash donation from the furniture company). If we were to make a special exception on GST for donations in kind, we will be favouring donations in kind over cash.

2. The Government does not have the breakdown for the amount of GST paid on donations in kind, as GST-registered donors commingle GST imposed on such donations together with the GST they charge on supplies they make in the course of running their business.

3. However, the GST imposed on goods donated to a charity is far more than offset by the tax deductions we grant the donor. To encourage charitable giving, Government has, since 2005, granted double tax deduction for donations to Institutions of a Public Character (IPCs), whether in cash or in kind. This has been enhanced to a 250% tax deduction for donations made during the period from 1 Jan 2009 to 31 Dec 2010. The 250% tax deduction allows corporate donors to deduct effectively up to 43% of the donation against their taxable income.