THE LAW ON PUBLIC BENEFIT AND VOLUNTEERISM AND THE ONE PERCENT SYSTEM IN POLAND

The one percent system was adopted by the Polish Government as part of a larger legal framework to improve relations between the private sector and the state. It was incor-porated into the Law on Public Benefit and Volunteerism, adopted in April 2003, and into the amendment to the Law on Personal Income Tax. The Law on Public Benefit and Volunteerism is designed to regulate such matters as volunteerism, transparency of the NGO sector, cooperation between NGOs and public authorities, and legal and tax procedures. It makes a distinction between organizations that carry out activities that benefit the public and organizations that are legally judged by the court to be public benefit organizations. Only the latter are eligible to receive one percent of personal income tax.

There are 24 categories of activities that may be conducted by nonprofit organiza-tions seeking to be classified as legally recognized public benefit organizaorganiza-tions. These activities are mentioned in paragraph 4.1 of the Law on Public Benefit and Volunteerism, and they include activities such as: the protection and promotion of health, science,

education, culture, the environment, animal rights, consumer rights, civil rights, public safety, European integration, volunteerism, and so on.

The Polish mechanism for transferring one percent of the taxpayer’s personal taxes requires much more effort and good will than the Hungarian model. The taxpayer is personally responsible for sending money to the eligible organization, through bank transfer or by post, between January 1 and April 30 of the following year—the last day to submit a tax declaration. The taxpayer then has to wait up to three months before being refunded by the tax authorities. It is still unclear what will happen in the event that errors are made in designating ineligible organizations.

Although the system is very demanding on the taxpayer, advocates argue that it strengthens the relationship between the taxpayer and the beneficiary organization, and therefore is an improvement on the Hungarian method of anonymous transfers. It is also much more cost-effective in that the tax authorities do not act as intermediaries between the organization and the taxpayer. Furthermore, at the discretion of the tax authorities, the taxpayer’s choice of beneficiary organization may remain confidential.

In 2003, the Klon/Jawor Association, in cooperation with the SMG/KRC, conducted a survey on a representational group of 1,005 adult Poles, regarding their opinions of the one percent scheme, and their willingness to participate in it.²¹ A total of 15.5 percent of the respondents had some background knowledge of the scheme.

Although the percentage seems low, it should be taken into account that the Law on Public Benefit and Volunteerism came into effect at the beginning of 2004. To every-one’s surprise, taxpayers were able to designate one percent in that same year, by submitting an annual tax declaration for 2003. Their was a very small number of official public benefit organizations at the beginning of 2004, due to the fact that the registration process only began on January 1, 2004. It is believed that the system will be more effective in 2005. The organizations themselves were not prepared for this opportunity and, as such, only a limited amount of information was made available to taxpayers. More than 39 percent of the respondents said that they would designate one percent to public benefit organizations, and 24 percent said they would consider it. Only 18 percent of the group who wished to designate their one percent felt that the time consuming and cumbersome process would prevent them from doing so—

12 percent said they would be “somewhat” deterred, while 5.6 percent were certain.

The respondents said they would prefer to support a particular field of activity rather than a specific organization. Only 1.8 percent of the respondents chose the Polish Red Cross as a potential recipient, and 1.7 percent chose the Foundation of the Great Orchestra of Christmas Charity. It is important to note that one percent of one percent of the total income tax is roughly PLZ 3 million (approximately USD 800,000)²², which could be a significant help to any organization. These numbers suggest that even the largest organizations were unable to create a strong brand awareness, which would appeal to taxpayers. This issue needs to be further examined, as it deals with the fundamental

issue of channeling the taxpayers’ desire to participate in the one percent scheme, into concrete action of supporting a charitable organization.

Respondents from Warsaw were much more reluctant to participate in the one percent scheme (22.2 percent) in comparison with the respondents from small towns of up to 50,000 habitants (45.1percent), towns with over 200,000 habitants (40.7 percent), and towns with populations between 50,000 to 200,000 inhabitants (36.7 percent). Unless this is a procedural error, it implies that Warsaw is inhabited by a splintered population, with very lax social responsibilities, a situation typical of urban dwellers. This assumption is supported by other findings of the survey, particularly that Warsaw respondents ranked the lowest in such categories as membership in non-profit organizations, and volunteer and charity work. This may also have some impact on the potential yield of NGOs from the one percent system, despite the size and wealth of the capital city.

Another important finding of the survey is the correlation between a lack of trust for the state and the tendency of taxpayers to designate their one percent to the non-profit sector. The one percent scheme may be used by this group as a way to protest governmental policy. Surprisingly, there is no correlation between one’s willingness to participate in the scheme and one’s trust in the integrity or effectiveness of NGOs.

Hungarian research also found this to be the case.²³ Therefore, transferring one percent of one’s income to nonprofit organizations as opposed to the state budget may not be an act of choosing the greater good, but rather the lesser evil.²⁴

There are about 23 million taxpayers in Poland who could potentially support public benefit organizations with one percent of their income tax. The average personal income tax in 2002 was PLZ 1,383 (approximately USD 370). Documents from the Ministry of Finances show that approximately PLZ 28 billion will be collected from personal income tax for 2004. If 100 percent of taxpayers choose to designate one percent of their taxes to a public benefit organization they could stand to gain PLZ 280 million (over USD 75 million). This projection, however, is very unrealistic, bearing in mind the results of the survey as well as the level of participation of taxpayers in the one percent system in Hungary. The preliminary data suggests that about PLZ 10 million (approximately USD 2.7 million) was gathered by the public benefit organizations in 2004. The Polish Humanitarian Action, Polish Scout’s Association, Caritas Poland, and the Batory Foundation are among the key beneficiaries of the one percent system.²⁵