The tax laws are expected to provide incentives to encourage activities by NPOs that satisfy certain conditions. But, in Korea, NPOs are, in practice, usually not subject to strict supervision of tax authority due to reasons, such as lack of administration and dispersion of supervision over non-single authorities.
With respect to the possible abuse of tax exemptions for NPOs, the tax authority should take a more active and responsible role in supervising and controlling them. The tax authority should put effort into its oversight of NPOs conducting profit-seeking businesses, to induce them to abide by the tax regulations and not abuse their special tax status. To this end, it is necessary to make external audits more effective in addition to that NPOs should be required to submit necessary documents including contributed assets and business income.
Tax incentive for contributions to NPOs is another important factor in supporting their activities. Tax deductions and credits for contributions are expected be widely available to the public, and contributors can easily obtain the tax benefit. But, lack of experience staff who are familiar with tax incentive system is a problem for NPOs not being able to make fully use of tax incentives. All information concerning tax exemptions should be widely available to the public. It is also important to encourage NPOs to form active association that provides member organizations with tax assistance or advice.
Usually, differential tax benefits are provided among different registration laws for NPOs and among different nonprofit activities According to the current tax laws, greater tax benefits are provided to contributions to government or government-related organizations and activities. This indicates a view that nonprofit activities are the main responsibility of the government, not of the civil sector.
There exist general regulations on capital formation that are intended to protect the basic assets of NPOs from any risk of loss or diminution of value because this property is the basis of an NPO's existence. Under the current law, nonprofit corporations, especially in case of foundations, are not allowed to invest in specific types of assets without permission from the relevant ministry and, as a result, they are faced with serious barriers for capital formation, which is an important factor to development of nonprofit organizations. The government often do not permit or accept the transfer of basic assets to stocks because if the stocks fall in value, the NPO will lose its permanent property. This would severely weaken the capacity to serve the public. This practice prevents NPOs from gaining access to the major vehicle for capital formation. But excessive regulation often hampers the natural increase of the basic assets whose income could become a major source of grant making and service delivery of most endowed nonprofit corporation. Successful capital formation is one of the most important factors for the continuing development of NPOs. The current practical restrictions on capital formation do not provide a positive prospect for NPOs.
The civil society has argued that strengthening the financial ability is the top priority in encouraging the civil sector to be actively involved in voluntary nonprofit activities. To improve financial situation of nonprofit organizations, it is needed to provide tax benefits for contributions to nonprofit corporations. This is the way of inducing individual contributors into participating in nonprofit activities of causes are supported by them. This is to expand rooms for voluntary participation of citizens and, at the time, improve financial ability of nonprofit organizations.
