Welsh charities have backed the Charities' Tax Reform Group's campaign for VAT reform.
Graham Benfield, chief executive of umbrella body the Wales Council for Voluntary Action, said that tackling the sector's irrecoverable VAT burden "has become more urgent than ever".
Welsh children's hospice Ty Hafan has said its annual VAT bill has more than doubled to £150,000 in the past year because it has built an extension.
"That's a lot of collection boxes," said Roger Page, the charity's director of finance. "Our fundraising team works very hard, but having to pay irrecoverable VAT means that £150,000 from the people of Wales is going to the Government instead of the children."
Benfield said action needed to be taken to stop charities' income draining away to the Government in tax. "The campaign is more urgent than ever because the more money charities spend, the more irrecoverable VAT they incur," he added.
WCVA supports the CTRG's campaign plea for the Government to introduce a matching grants scheme to compensate charities for their VAT losses.
CTRG says that priority needs to be given to charities delivering public services, those engaged in shared services, VAT on investment in fundraising and maintaining charities' buildings.
Earlier this month, the Better Regulation Task Force report on civil society highlighted the problem of VAT and said work needed to be done "to identify how this unsatisfactory situation can be improved".
Last week, Dawn Primarolo, the Paymaster General, said the Government preferred "targeted initiatives" to general VAT relief, but declined to make any specific commitments.