Workshop “The Assessment of the Impact of the Percentage Tax Designation Mechanisms on Civil Society” The experience of Hungary by István Sebestény Phd Vienna, Austria October 5–6, 2015 Research initiated and funded by the ERSTE Stiftung to assess the impact of the percentage tax designation on civil society based on experience from Hungary, Lithuania, Poland, Slovakia and Romania

„When the germ of the 1% idea appeared in 1991, it emerged as part of the parliamentary debate on how to finance the churches, the liberal party suggested that taxpayers should be authorized to transfer 1 percent of their personal income tax either to churches or to voluntary organizations. The intention behind the motion was to reform the system of financing churches and not to create an additional source of support for NPOs. Finally the law adopted in 1996 identified only the social organizations as potential beneficiaries. In 1997, it was amended by Law CXXIX/1997, which provided that, upon the taxpayers’ decision, another – so called “second” – 1% of the personal income tax could be transferred to the churches.” (1%, 2000)

Origins of the 1% idea The new method of supporting civil society organizations was born almost accidentally. The original objective: a solution for church funding Initiators: politicians and government officials No organized civil lobby, only some expert influence in the first phase

The most important laws referring to 1 percent system 1996 – 1% law 1997 – law on „second” 1% to churches 2007 – amendment 1% law (technical changes) 2011 – a comprehensive law on civil sector (Civil Act) 2013 – amendment of 1% (registration, anonymity)

Eligibility A long list of fields of activity (until 2014 no list of eligible organizations) Having been in existence for some years Independence from political parties Not in arrears with tax and duties From 2015 to be registration at tax office

Procedure The 1% designation is part of the tax declaration The taxpayers are allowed to designate only one beneficiary Obligatory elements of the designation declaration: tax identity number and name of the taxpayer, tax identity number of the recipient organization Designators are unknown for the organizations (until 2015 except his/her approval – potential future donors ?

”What are we talking about”? In 1997, 8,400 organizations received 1 percent 1,058 designations, 7 million € In 2014, 24,000 organizations received 1 percent 1,931 designations, 22 million €

Figure 1 First impact of the introduction of the 1% system

Figure 2 Redistribution impact

Figure 3 Changes of 1+1% designations in Hungary, 2005–2014 Sources: NTCA

Figure 4 Distribution of designators by their designation in Hungary, 2005–2014 Sources: NTCA

Figure 5 Composition of possible sum of civil 1%, 2005–2014 Sources: NTCA

Figure 6 Changes in the distribution of the 1% support by field of activity of recipients Source: NTCA and HCSO

Figure 7 Composition of designations, beneficiaries and the amount of 1% support received by field of activity, 2014 Source: NTCA

Figure 8 Composition of designations, beneficiaries and the amount of 1% support received by type of organizations, 2014 Source: NTCA

Figure 9 Composition of amount of 1% received, all state support and total income by type of community, 2013 Source: HCSO

Figure 10 Number of NGOs that received 1% designations and/or private donations, Source: HCSO

Figure 11 Breakdown of NGOs by receipt of 1% designations and/or private donations in 2013 Source: HCSO

Figure 12 Growth of 1% designations, individual donations in Hungary, 1996–2013 Sources: HCSO

„Constant” challenges I The objective: Convincing the rest of taxpayers that they should designate a 1% recipient The „situation”: lower tax rate*, less 1% As a preparation: Finding out why almost half of the taxpayers are not willing to do so – serious and sophisticated research is needed Developing a strategy of sector-wide efforts * From 2011 transformation of the dual-key system into flat tax

„Constant” challenges II Raising public awareness of the 1% system through direct actions and campaigns Involving local governments in promoting 1% Developing coherent fund raising and 1% strategy Improving accountability, trustworthiness, and legitimacy among possible recipients

Thank you for your attention!