Are tax incentives a valuable tool to stimulate philanthropy? There are no easy or clear-cut answers

In a 2020 report titled ‘Taxation and philanthropy’, all 40 countries studied by the Organisation for Economic Cooperation and Development (OECD) and the Geneva Centre for Philanthropy granted tax reliefs associated with philanthropy.   

The fact that a portion of public funds continuously flows to this domain raises several questions, notably: are tax incentives justified? Are they effective? If yes, should we have more? If no, shouldn’t they be eliminated? None of those questions has a straightforward answer.  

The overall idea behind tax incentives for philanthropic activities is easily stated – to increase giving to the nonprofit sector. But more delicate discussions arise concerning specific types of tax incentives. These can be classified into two broad categories: incentives for donors and incentives for nonprofit entities. The former encompasses different tax reliefs for giving, such as a tax deduction or a tax credit, and the latter is usually an exemption of officially recognised nonprofit entities from various types of tax. This exemption is not controversial unless the entity’s activities steer away from nonprofit to business.