Tax incentives on charitable donations make people more likely to give money to charity but are too often skewed in favour of the wealthy, research from the Charities Aid Foundation has found.
From a sample of 26 nations, including the UK, the US, Germany, China and France, analysed in the report Donation States: An International Comparison of the Tax Treatment of Donations, CAF found that people are 12 percentage points more likely to have given to charity in the past month in a country that offers tax relief on donations than one that does not.
The report, published today, says tax incentives encourage businesses and individuals to give to charity, but are too often skewed in favour of government-backed causes or the wealthy.
Researchers found that the value of tax incentives has a direct impact on how much people donate, with higher value incentives leading to larger amounts of money being given to charity.
It says these incentives are most effective in nations with higher rates of income tax.
A number of recommendations are made in the report, including that governments avoid deciding what types of charitable causes qualify for tax-incentive schemes and that charitable giving should not be used to compensate for cuts in public services.
It says governments should ensure incentives are the same for companies and individuals and do not benefit the wealthy over the rest of society. It warns that although focusing on those with more money to give to charity appears pragmatic, it could risk causing long-term damage to the charity sector.
The report notes that some governments use tax incentives to sideline parts of the third sector that do not conform to their agendas.
It highlights tax credits as the most progressive form of tax incentive, because they ensure people on low incomes do not endure the highest cost when donating, although tax deductions are the most common method used.
Other recommendations in the report include making claiming incentives easier, offering more favourable incentives in low-tax economies and using caps rather than eligibility clauses in countries where tax expenditure must be limited.
Adam Pickering, international policy manager at CAF and the report’s author, said it was clear that tax incentives could be an effective way for governments to encourage people and businesses to support civil society.
"Crucially, it is important that they are easy to understand, non-politicised and progressive," he said. "This means that governments should not cherry-pick favourite causes and incentives should be just as generous to people on moderate incomes as they are to the wealthy and big business.
"If incentives are seen to be stacked in favour of an elite few, this could have a chilling effect on mass engagement in charitable giving in the long run."