18th Caesarea Economic Policy Planning Forum 2010 - Israel's Third Sector

The third sector in Israel is an important and essential part of Israel’s society and economy. Civil society and third sector organizations have been present in Israel since its pre-state period, and constitute the country’s social infrastructure. Its activities and organization, during regular periods and at times of crisis, are a reflection of Israel’s strength and resilience. Nonetheless, this sector is confronted by obstacles that prevent it from realizing its full potential. This situation affects certain processes in society that impair solidarity and widen the social gaps in Israel, harming Israel’s democracy and society.

A discussion that addresses the question of the role of civil society in the context of the relations between the state and society has never taken place in Israel. What is its proper and desirable place, and how can social forces be integrated into the effort to tackle the challenges confronting society? If in the past, the claim was made that Israeli society was “a mobilized society,” in the sense of summoning the will and the faith to realize the age-old vision and establish a modern, democratic, Jewish state, today there are ever-growing demands from within society for the right to participate in the process of molding the character of the society and the state, rather than leaving this solely to the formal establishment. A cross-sectoral partnership in which the culturally diverse segments of society are represented offers an opportunity for national progress and development toward equality and social justice.

The importance of the third sector to Israel’s economy and the share of its organizations in providing social services in an era of privatization and commercialization raises a series of dilemmas regarding the responsibility of the state, corporate social responsibility, and the manner in which third sector organizations conduct themselves, all of which are affected by government policy and the attendant legal arrangements.

This document seeks to elucidate the various issues, to delineate the current state of affairs in Israel, including an international comparison, and to propose main points for discussion, as well as possible alternatives aimed at formulating public policy and developing the tools required to help third sector organizations fulfill their mission and realize their potential.

1. The place and role of civil society organizations and the third sector in the fabric of Israel
   
   
2. The factors that assist and that obstruct the full utilization of the potential of these organizations
   
   
3. Government policy and the effect of inter-sectoral cooperation to contend with the challenges of Israeli society in the decade ahead
   
   
4. Legal arrangements, regulation, and the taxation of third sector organizations and their donors
   
   
5. Ways of encouraging local households and businesses to contribute
   

Some of the issues that the following recommendations address require a preliminary examination of the objectives, policy, and ways of achieving the aims, and a subsequent discussion by the concerned parties to identify implementation procedures that are appropriate for Israel’s society, the local situation, and the constraints. Some of the issues have yet to be adequately discussed by the public, which is a vital a point of departure for the recommendations.

1. Policy

• Formulate government policy in conjunction with the third sector that will give expression to the role and status of this sector.
  
  
• Discuss and forge a path for cooperation between the three sectors – the government, business, and society (the third sector).
  
  
• Establish a “round table” process to encourage debate and broaden it to encompass additional areas.
  
  
• Examine the regulation of third sector organizations, coordinate matters of self-regulation with them, and update the arrangements in accordance with the needs of the 21st century.
  
  
• Adopt government policy that encourages philanthropy and targets segments of society characterized by meager donations through incentives in the form of tax breaks and simple mechanisms to obtain them.

2. The financing of third sector organizations

• Encourage the creation of a philanthropic capital market and establish various paths for financing civil society organizations.
  
  
• Designate a specific rate of Mifal Hapayis (national lottery) funds to be transferred to third sector organizations via a public philanthropic fund established for this purpose.

3. The financing of third sector organizations through public funds

• Separate the three paths of public funding:
  
  
• Payments by law or special arrangements
  
  
• Benefits/grants to third sector organizations
  
  
• Payment for services purchased by the government or the municipality
  
  
• Increase indirect funding (via tax benefits for donors and organizations). Direct budgeting (allocations and grants) will be decided according to government policy, which will be determined from time to time.

4. Taxation: donor benefits

• Expand donor tax breaks.
  
  
• Provide tax breaks to donors by reducing taxes for specific donations (designated matters, gifts of a certain size, etc.)
  
  
• Cancel the minimal donation required to entitle the donor to a tax benefit and raise the maximum donation required to entitle the donor to a tax benefit, especially in the case of particularly large donations.
  
  
• Make it possible to register a contribution that was made after the tax year (up to the end of the first quarter of the subsequent year).
  
  
• Accord tax breaks to corporations that demonstrate social responsibility and contribute to third sector organizations.

5. Taxation: third sector organizations

• For tax purposes, distinguish between third sector organizations (private, voluntary, non-profit organizations) that fall within the definition of a third sector organization and those that do not (which have been accorded that status of nonprofit (Malcar) in accordance with the definition under V.A.T. law).
  
  
• Annul the wage tax for third sector organizations, while designating those whose activities are of a business nature as businesses.
  
  
• Make it possible to spread capital gains tax payments over several years.
  
  
• Set input tax (V.A.T. paid) at 0% for donations/gifts to needy persons that are not used to generate a service or goods, and create a mechanism to ensure that this arrangement is not abused.
  
  
• Eliminate the distinction between a third sector organization and a corporation for profit purposes as regards surplus expenses and the taxation of dividends.
  
  
• Regulate the execution of profit-making activities that may not be distributed to members (including via hybrid bodies), whose aim is to finance activities for the benefit of the public within the framework of the customary tax regime vis-à-vis non-profit organizations.

6. Philanthropy

• Accommodate special arrangements by the law for establishing and operating Israeli philanthropic funds.
  
  
• Arrange a procedure to allow employees to make donations via their employers.
  
  
• Publicly encourage and recognize philanthropy.
  
  
• Prevent the state from collecting donations and competing with third sector organizations for donations. Donations from the public and from businesses should be transferred to third sector organizations.
  
  
• Regulate by law the collection of donations from the public, including by professional fundraisers.

 
7. Third sector organizations

• Reinforce the representative bodies of third sector organizations.
  
  
• Develop independent means and reduce dependence on public finances.
  
  
• Enhance professionalism by improving methods of management, self-auditing, transparency, and self-assessment.
  
  
• Foster cooperation within the third sector, and between the third sector and the government, and the third sector and the business sector.

8. Association

• Enable the association of non-profit organizations (in the framework of the Nonprofit Organizations Law) and companies for the public benefit (in the framework of the Companies Law) as private bodies only, and prohibit the association of local authorities, government bodies, or their branches, according to the laws governing the association of private entities.
  
  
• Legally define the concept of “public benefit” and provide tax breaks to entities that meet the criteria, which will be established. The tax authorities will supervise and certify an entity's fulfillment of the necessary requirements without requiring specific authorization from the Knesset Finance Committee.

9. Data and research

• Collect data and input them in a database that will be open to the public, including policy makers, scholars, organizations, and other interested parties.
  
  
• Distinguish between data regarding third sector organizations and other non-profit organizations: the government, municipalities, statutory corporations, and entities controlled or owned by a central or local authorities.
  

 Read "Israelis Don't Donate" – a summary of the findings of this team (Haaretz, English)

 Read the full report on Israel's Third Sector (Hebrew)

 See the PowerPoint presentation that accompanied this session (Hebrew)

 Read the Hebrew summary of the session on Israel's Third Sector  (Hebrew) 

 Read all the English summaries of the recommendations of the working groups (English)

View all the proceedings of the 18th Caesarea Forum (with simultaneous English translation)

See the interview with research team leader Dr. Nissan Limor (Hebrew)

 Go to the main page of the 18th Caesarea Forum (English)