Taxes and philanthropy

The President of the Republic proposed to the Federal Congress to limit, as of 2022, the deductibility in Income Tax (ISR) of the donations delivered by any natural person to an authorized donee to the amount that is less than five times the value of the Update Measurement Unit (just over 160,000 pesos) or 15% of the total income of said taxpayer.

The Congress, dominated by the party in power, approved the initiative without moving it a single comma. It doesn’t seem like a good idea.

The explanatory memorandum says little or nothing about the reasons for limiting these contributions. The presidential pen only states that “in order to provide a progressive effect to what is established in article 151 of the Income Tax Law, it is put to the consideration of that Sovereignty to eliminate the exception contained in its last paragraph.”

The reasonings are, in reality, other and have to do with those who organize and promote philanthropic institutions in the country. The President has stated that philanthropy should be kept from contributions, but not from taxes.

We have pointed out in other spaces that, despite the notorious differences between taxes and philanthropy, where those are legally mandatory and this implies voluntary contributions, both concepts are closely related to each other, since they constitute contributions from an individual in favor of a cause that a generality considers convenient or adequate.

Taxes satisfy collective needs represented in public spending (expenditure budget), while philanthropy gathers resources for the needs of certain groups – within this large community – that require goods or services that the budget cannot cover.

For this reason, governments recognize a role in philanthropy that is complementary to that of the State itself, and they do so – precisely – on the tax side, exempting non-profit institutions or associations from income tax for said contributions and granting deductibility. –Also in the ISR– of the contributions made by their donors, provided that said entities have the authorization of the Treasury to operate as donee and make transparent to the donors the use of every penny they receive.

There is no advanced economy in which its expenditure budget is sufficient to cover the shortcomings of the entire population. The fiscal route ensures the satisfaction of some of these needs for those who do not receive them directly from the State, such as the deduction of medical expenses or tuition fees. The same happens with vulnerable groups. If the state does not meet your needs, philanthropy can. This is how it works all over the world.

In a country like ours, with the terrible rates of poverty and the precarious public services to groups that require medical or assistance, it does not seem a good idea to discourage donors.

The President resents that the deduction is the incentive that motivates the donor. If the wounded in the Red Cross, the elderly asylee or the girl who receives treatment for cancer do not make that moral judgment, it is not up to the President to do so.

Twitter: @erevillamx

ITAM Tax Law Professor

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Lawyer from the Escuela Libre de Derecho. Partner of Deloitte México (Tax and Legal Services). He was Director General of International Fiscal Affairs of the SHCP and represented the agency in international forums and organizations. He has been a professor of Tax Law for more than 30 years at various universities.