Matthew Lester: Tax deductible donations to universities – a win-win

As South Africans prepare for Finance Minister Pravin Gordhan’s budget, and how it may shorten one’s pockets, there’s another big taxpayer deadline is on the horizon. The end of February signals the end of ordinary citizen’s tax year. It’s also a time for said taxpayers to find any last minute self-beneficial tax options. One that found its way into my inbox, and that which Matthew Lester addresses below, is section 18A of the income tax act. It’s a tax deductible donation which universities and schools push at former students, in an attempt to raise much needed capital. In true Lester style, he looks at the other side of the coin, with a focus on universities, given the #FeesMustFall saga. And he makes a claim for why all should be donating, not purely because it’s tax-deductible, but rather because it’s about the very future of South Africa. Another good read from the tax guru living in Grahamstown. – Stuart Lowman

By Matthew Lester*

In February every year, every university vice chancellor writes to the alumni and friends of the university requesting donations. And they never forget those old lines ‘Remember, donations are tax deductible in terms of section 18A of the income tax act.

Matthew Lester

Today the tax benefit of up to 41%, if the donation does not seem to hit the spot. It is sad to see the reaction in social media – ‘What? Students burn the universities and now you want donations? Are you joking!’

It is a great pity that so many are missing the most important point in the #FeesMustFall crisis. This debate is not about a small minority of students who have resorted to violence. It is about the very future of South Africa.

National Treasury studies reveal South Africa has to create 9 million new good jobs in the next 50 years or there will be social chaos. Then all will be losers, rich and poor alike.

Economist Thomas Piketty writes in ‘Capital in the 21st Century, 2014:

“To maintain a competitive edge in a rapidly transforming knowledge economy, countries need to invest more in quality education. Not even minimum wage schedules can multiply wages by factors of five or ten: to achieve that level of progress, education and technology are the decisive factors.”

Education is the only hope for South Africa. Universities have to create the leadership that can somehow create the good jobs that will make a better life for all. There is just no other solution on the table.

The crisp issue in the #FeesMustFall debate is Section 29 of the constitution.

Everyone has the right:

  • (a) to a basic education, including adult basic education; and
  • (b) to further education, which the state, through reasonable measures, must make progressively available and accessible.
Universities and the future go up in smoke. More magic at

#FeesMustFall-for-all (including the wealthy) is not achievable or desirable in South Africa today. The cost of doubling the current post education budget of R68 billion per annum as recommended by the Commission of Enquiry into Higher Education cannot be achieved without increasing State borrowing or reducing delivery to other needy South Africans. That would fly in the face of the constitution.

Thus it is going to take time for the government to identify and implement the ‘reasonable measures’ to make university attendance progressively available and accessible for all.

In the meantime universities have to keep working on the mission to provide the resources South Africa so desperately needs.

The fee bases and government subsidies of universities have already been pushed beyond sustainable levels. Thus it is vital that donations and other income streams be preserved and enhanced to keep universities going until solutions are found and implemented.

The section 18A tax-deductible donation is not what it used to be. This is no longer about building new facilities at universities, a tax deduction, feeling good or even buying one’s way into heaven. This is about bursaries and getting more students into universities in the hope that many will make a contribution to making South Africa a better place for all.

We have to keep our universities going. It is the only option.

If ever there was a time for a bit of generosity it is now. And the tax deduction? Well that’s just the cherry on the top!

  • Matthew Lester is an associate professor at the Rhodes Business School and a member of the Davis Tax Committee.
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