THE RESEARCH ON FISCAL AND TAX EFFECTS ON DONATION INCOME OF CHINA’S FOUNDATION

Abstract

In this paper, which is based on China’s current fiscal and tax policies and data
collected from national foundations in 2010, we used donation income as a dependent variable,
and pre-tax deduction qualification, government grants, type of the foundation (charitable or
not) as explanatory variables, and thus propose three hypotheses. Total assets, investment
income, public benevolent activities expenditure, and definitive net asset ratio were also used
as control variables in constructing an econometric model to analyse the effects of the fiscal
and tax policies.
We conclude that: Pre-tax deduction qualification has a significantly positive effect on the
donation income of a foundation. The income of government grants and the donation income
show a U-shape relationship, which suggest the existence of crowding-out effect and
complementary effect. Given its charitable nature and necessity, however, charitable
foundations do not receive more donation income. Total assets, philanthropy expenditure and
donation income present significantly positive correlations, while investment income and
donation income are negatively correlated, although not significantly. Definitive net asset ratio
and donation income present a U-shape relationship. We finish by forwarding several
suggestions on the current fiscal and taxation policies based on the above findings.