New Tax Law Threatens Civil Organizations

New Tax Law Threatens Civil Organizations

Throughout Mexico there are around 14,000 civil donor organizations, i.e., non-profit organizations authorized by the Tax Administration System (SAT) to issue tax-deductible receipts to their donors. Of the 14,000 organizations, 400 are in Guanajuato and about 130 in San Miguel. Only 40 of them are authorized to receive donations, according to data from the municipal government’s Office for Liaising with Civil Society Organizations.

 

These 40 donor civil organizations and others like them around the country may be in danger of losing their status from SAT due to an amendment to the Income Tax Law (ISR) for fiscal year 2021 passed by Congress on Nov. 5.

 

The amendment to article 80 of the ISR states that when donation recipients receive more than 50 percent of their income from activities unrelated to their corporate purpose—determined by the mission declared within their statutes—they will lose SAT authorization. This will make it difficult for organizations to attract funds for operation and mission fulfillment, since it limits the income obtained through activities with a purpose outside of their missions.

 

“Corruption is over with, it’s not a joke, understand it,” Senator Jesusa Rodríguez told Atención, “Why should a donee fear complying with what its statutes propose? Being used to it not being like that is another problem; they must comply with their statutes,” she said and asserted, “If [this measure] is to remove corruption, everything we do is worth it; eliminating corruption can lift us out of misery. The cost is high, but the cost of having it there is infinitely higher.”

 

Before the reform was approved, Raquel Buenrostro, head of SAT, explained to senators that there are cases whereby donees lend themselves to get involved in operations associated with money laundering. Buenrostro also said that the proposed reform was aimed at shielding those associations that follow the guidelines in order to eliminate those that profit and “even come to act as a business.” 

 

This statement ties in with those expressed in 2018 by President Andrés Manuel López Obrador during his morning conference a few days after being sworn in, when he stated that for now civil organizations would no longer receive federal monies, since under his government the beneficiaries of civil organizations would receive direct support from his administration’s social programs.

Foto Ilustrativa: Miembros de FTH empacando despensas para los más vulnerables

It’s about sticking to the law

 

Atención tried to speak with several of the donees registered in San Miguel after a document redacted by seven civil organizations operating in the country was circulated nation-wide prior to approval by Congress and Senate, in an attempt to stop the change to the law. The group was made up of organizations such as 30 Semillas and Centro de Enlace y Desarrollo, and the document was signed by the Fiscal Group of Specialists in Organizations of the Civil Society. However, the local associations Atención contacted claimed to be unaware of the issue, or said they were not authorized donees, or that they were in the process of obtaining authorization.

 

A lawyer with 20 years’ experience in civil organizations (who asked to remain anonymous) does not see a problem in the ISR reform since the government will not exercise greater control, only set different standards, requiring organizations to submit annual transparency reports that break down income, expenses, and the work they do to influence public policy. “Previously, an authorized donee could obtain up to 10 percent from other income. Now it will be fifty percent; if it exceeds that, the donee will [lose its donee status].”

 

The lawyer gave an example: “Let’s imagine that an organization authorized to receive donations decides to have an art sale or auction. The ultimate goal, its fiscal purpose, is not to sell art, nor hold an auction, and operates with a million [pesos] a year. From the auction the organization obtains 510 thousand pesos, so it has already exceeded its income for concepts that are not related to its fiscal purpose. This will cause trouble and its authorization as a donee can be withdrawn.”

 

Moreover, there are organizations that have developed ‘productive’ projects, social enterprises, or businesses, since they don’t always receive donations; but since these do not match their fiscal purpose, they will also find themselves in trouble.”

 

Finally, the lawyer explained that “in terms of verification, the spirit of donee organizations is that they reach out to vulnerable people. In organizations there are small expenses that did not need verification, but now it will no longer be possible to work that way. For each expense that is not verified, you will have to pay 35 percent to SAT.” The lawyer used scholarships as an example: “How will scholarships awarded to students be verified or billed? They cannot offer invoices. Here the organizations will have to look for strategies to be able to verify [them].”

 

Our interviewee indicated that before worrying, organizations should make sure to analyze how they are doing and seek solutions, restructure themselves. “They cannot afford to disappear. They do work that corresponds to government, and work with the population on a daily basis. They make visible what the government cannot or does not want to see. They are not enemies of the system, they work for the common good.” However, “there are organizations that have transparency problems, but not all of them work that way. It is important that they monitor expenditures, that they keep track of why they spend what they spend, that they really use resources for operations, regardless of where they come from.”

Senadora Jesusa Rodríguez

Corruption is over, period

 

Senator Jesusa Rodríguez indicated that the issue should be observed in a comprehensive manner, since corruption has penetrated to the core, and that has impeded the development of the country. “The main axis of the 4T government (fourth transformation, as President Andrés Manuel López Obrador calls it) is to attack corruption. If it is not attacked, we would be like machinery that begins to creak after the oil (corruption) is removed. But we can never get it to work right until the bad oil is completely removed. How can we make it so that the social engine—human work—is productive if there are always holes through which energy is lost?” 

 

Rodríguez understands that there is fear of change, but changing is essential. “What should be terrifying,” she said, “is the corruption in which we have lived for the last 80 years, which has even corrupted people’s private lives.”

 

Senator Rodríguez mentioned that there is fear “because the faucet is closing,” but “that’s because we are not willing to change.” She stressed that each case will be addressed in a specific way. “There was controversy over the 109 funds that we discontinued, but we are making sure that this money reaches the people without intermediaries. We don’t know who was good or who was bad, but now the important thing is that [the money] reaches the indicated beneficiaries. It is a serious [problem] that Monsanto, Bachoco, and Bayer have received money from the public treasury.”

 

The senator said that if the idea were to end corruption punitively, it would take 300 years to do so, which is why the amendment to the ISR is taking a general approach. “It is not two or three who got corrupted.” 

 

“What about the donees?” she adds, “Why does more than 50 percent of their income come from activities unrelated to their purpose? They took the opportunity to steal or keep the money, evade taxes, or do other things that they should not have been doing. Now the Department of Finance and the Treasury will build the proper mechanisms. It is difficult…it is not about blaming or criminalizing the donees. It is about realizing that the mechanisms were degraded, that the transparency with which they started no longer exists, and we must recover it. Why should a donee fear complying with what its statutes propose?”

Ricardo Villareal

Not enough nay votes in a government that is “just a show”

 

Federal Deputy Ricardo Villarreal told Atención that the problem with the approved amendment is that it leaves the tax authority with powers that can harm civil associations (ACs): “They could arbitrarily expropriate their assets. The fact that within the new reform if SAT considers that 50 percent of the resources an AC spends are not used for its fiscal purposes, it can sanction the AC and seize its assets; [this] is very serious.”

 

Villareal insists, “They are private resources, and those who donated the resources were altruistic individuals who decided to support the ACs. The government should not interfere in controlling the destination of those resources. Many ACs use the resources they receive not only to cover their essential needs, but to support other ACs. There are others who are dedicated to cultural activities but then donate resources to others who donate scholarships to low-income children; it’s something that happens every day.”

 

For Villarreal, the fiscal purpose can be varied, but the Treasury will decide whether to approve it or not. “We will never agree that the state has so much power against individuals; it should not persecute anyone, much less an AC which helps the most vulnerable and corrects what the government does not do. If resources are private, the government must not interfere,” he stressed. “The president does not believe in altruistic people; I do. With this reform he is saying, for example, that it is bad to feed more than ten thousand residents of San Miguel in difficult times; I do not believe that. That is the difference, they are not bad actions. I’ve seen the support arrive. If the president thinks it is wrong, he is wrong. He does not know the kindness of many people who support or who work in a civil association.”

 

Finally, Villarreal said that Mexico needs a counterweight Congress, and that in the future, once there are enough votes, he would seek changes in this ISR law.

 

He added, “If an AC launders money it is a crime, but let the Attorney General’s Office investigate it. Don’t punish good people under the false pretense that someone is committing a crime. Good people are punished for their inability to punish bad people, and we don’t know if they exist or not. There are no investigations in progress. There are no civil association administrators in jail. The president loves to say there is corruption. Yes there is, but the way to end it is by punishing the corrupt and I don’t see anyone in jail; it’s just a show.”

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