A new law scheduled to go into effect in India this year demands that corporations spend at least 2 percent of their net profits on charitable causes. Would this be a good idea for Latin America?
According to most studies, Latin America is one of the world’s regions where corporations and wealthy people contribute the least to philanthropy.
This is in part because in most countries in the region there are no tax incentives for corporations or the rich to donate their money, and there is a general expectation that the government should be in charge of taking care of the poor, experts say. In addition, many Latin American countries have relatively small tax collection bases, in which corporations bear the brunt of tax payments.
The recently released World Giving Index 2013, a ranking of philanthropy in 135 countries around the world prepared by the London-based Charities Aid Foundation (CAF), shows that most Latin American countries rank in the bottom half of the list.
The study, based on Gallup polls that asked people in each country about their giving behaviors, includes Great Britain, the Netherlands, Canada, Australia and the United States among the countries where people donated the most money.
But with few exceptions — such as Chile, which ranks 18th, Paraguay (25th), Haiti (30th), and Uruguay (35th) — most Latin American countries are much farther down on the list. Brazil ranks 72nd, Mexico 75th, Peru and Ecuador are tied in the 80th place, Argentina 84th, Venezuela 100th, and El Salvador 110th.
While in Great Britain, 76 percent of respondents and in the United States, 62 percent, say they have donated money over the past year, in Brazil the percentage was of only 23 percent, in Mexico, 22 percent, Peru, 21 percent, Argentina, 20 percent, and Venezuela, 14 percent, the study says.
India, which according to the World Giving Index 2013 does not fare much better than Latin America in terms of having a culture of philanthropy — only 28 percent of those polled in India said they have made a donation over the past year — will start requiring corporations to donate at least 2 percent of their net profits beginning in April.
According to the new Indian corporate responsibility law, corporations of a certain size will be subject to a “comply or explain” rule requiring that they either spend the 2 percent minimum for charitable causes, or explain to tax authorities why they have failed to do so.
The law will impact at least 2,500 companies, and generate $2 billion in additional corporate spending for charities, according to an Ernst & Young accounting firm study.
In a telephone interview, I asked Ted Hart, the head of CAF America, the U.S. affiliate of the Charities Aid Foundation, whether it wouldn’t be a good idea for Latin American countries to follow India’s steps.
He said he is not thrilled about the Indian law. They have done something similar in South Africa, and it hasn’t worked very well because companies have been limiting their charitable donations to their legal requirement. With proper encouragement, corporations could give more than 2 percent, he said.
“The philanthropic experience should be encouraged, not mandated,” Hart told me. “When you have a legal requirement, it tends to work as a ceiling.”
Hart recommends offering tax deductions to corporations for their charity donations, creating government standards so that donors can know which charities are legitimate and well-managed, and getting governments more involved in encouraging a culture of giving in their countries. “I am more of a fan of the carrot than of the stick,” he concluded.
My opinion: Many Latin American governments don’t want to offer tax deductions for charitable donations because they fear a reduction of their tax collection, and because they don’t want to lose their monopoly on social welfare.
Problem is, many of these governments are misspending much of their countries’ tax money in corruption and politically targeted subsidies.
Perhaps, more governments should offer tax deductions for donations to worthy charities, such as Mexico has begun doing in recent years. And governments should start certifying which charities are well-managed, so that corporate givers could channel their donations to foundations that know communities’ needs much better than politicians.
The “Latin America donor index” database published by the Inter-American Development Bank and the Avina Foundation is a step in that direction.
If none of this works, it may be time to consider other measures. It will be very interesting to watch how the Indian experience works out.