Fiscal impediments to giving in China

Warren Buffett and Bill Gates visited China to encourage rich Chinese to engage in more philanthropy. The two industry titans turned philanthropists called their first meeting, with 50 Chinese business leaders, a ‘complete success’. That is good to hear, and my research reveals that there is a lot of energy around giving in China, as Alliance has reported. But the fiscal environment is not yet as favourable to giving as it could be.

China does offer high deduction limits, it is true: 30 per cent for individuals and 12 per cent for enterprises (compared to 50 per cent for individuals and 10 per cent for corporations in the US, a country with very high limits). But there are fiscal and practical impediments to giving in China which will deter some people and companies from making donations that come close to these high upper limits.

First, with respect to companies, most will not give anywhere near 12 per cent of their profits to charity as it would conflict with their profit maximization motive. The general worldwide statistics suggest a giving level of 1-2 per cent for companies. Thus, an expectation that businesses will top up their giving to 12 per cent will not be met.

Second, rich individuals are deterred from giving in China by fear of unfavourable publicity, which might call into question where they got their money. A recent Credit Suisse report points to a sizable grey economy in China with significant unreported income in the upper income ranges.[1]

Third, all contributions in China must be in cash: no individual Chinese can donate stock in their own companies and qualify for the deduction (which is what Buffett and Gates did).

Fourth, there is no estate tax in China, which means that one of the incentives for giving (at the end of life) does not exist there. The government means to fix this eventually, but not yet.

1 http://nextbigfuture.com/2010/08/full-credit-suisse-china-hidden-wealth.html

Karla Simon is Professor of Law at the Catholic University of America. Email simon@law.edu


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