1. Business & Arts South Africa expresses its gratitude to the Department of Arts and Culture for its continued support of BASA
2. The Department should be congratulated for achieving substantial growth in the vote, and sustaining this growth in the MTEF, better reflecting the role – both potential and real – that the arts and cultural activities play in our society
3. The introduction of an independent Ministry of Arts and Culture serves too to reposition the arts and cultural activity positively in the minds of government, business and the general public.
4. We consider that (2) and (3) above create an opportunity to develop an enabling environment in which artists can thrive; this is as much about perception as it is about funding.
5. From our (BASA’s) perspective, these are positive factors which will, we believe, contribute to a greater awareness of opportunities available to business through support for the arts whether for largely commercial reasons or as part of corporate social investment (in most instances, the two combine very effectively).
6. As a general comment, we consider that the perception of the Department is not always positive within its constituency, the arts community. This appears to stem from:
1. a lack of communication or clarity as to the Department’s policy on funding; in some instances, it appears to duplicate the function of, for example, the National Arts Council, through funding ad hoc projects rather than existing bodies already established or governed by the Department itself
2. an apparent reluctance to engage directly with civil society organizations and agencies representing the arts sector
7. Following from (4) above, we feel it important that where the sector is brought into disrepute involving agencies or entities funded with public monies, the department should consider intervening to ensure timeous, transparent and impartial resolution. Delays serve only to discredit the entire sector and impact negatively upon the public’s perception (in our instance, the corporate sector specifically)

The following comments/suggestions have particular reference to Arts and Culture Programmes 2, 4 and possibly 5, and may assist in expanding the impact of the budget vote

8. We consider that greater emphasis should be placed on
1. Balancing the funding of infrastructure (scheduled entities) with that of the creative process itself based on a clearly articulated rationale. We appreciate that public funding is supporting provision of, for example, performance or exhibition spaces, but funding is also needed for activities within such spaces
1. To ensure sustainability and avoid the hand-to-mouth (project to project) existence of many companies
2. To promote creative excellence
3. To encourage entrepreneurial activity and provide the platform to leverage further funding/sponsorship from business or other agencies
2. The relative roles of national, provincial and local funding for the arts and culture need to be clarified and firmly entrenched, so that accountability is handled at the appropriate tier and expenditure may be more effectively monitored
3. The value of the artist within society. While it is undeniable that the arts can and do address social priorities very effectively (education, skills development, recidivism, job creation, urban regeneration, new revenue streams), no artist should be obliged to justify his or her existence in these terms (as a comparison, sportsmen and women are not called upon to do so). We believe the department has a role to play in promoting ‘the arts’ and ‘artists’.
4. Similarly, artists are not necessarily entrepreneurial, and are often not business-like; thought might be given to establishing a ‘help-desk’, available to assist applicants seeking and receiving public funding. This would offer guidance and encourage fiscal responsibility. We believe that if the department were to invest in such a facility, over the long term money would be used to greater effect.
9. Subsidy for the arts is a given, both here and abroad. However, public funding is not able to meet every demand, and it is critical to devise strategies to drive greater corporate sector take-up. One such method is through tax concessions for giving to the arts, as is practiced elsewhere in the world. BASA has made representation through the former Minister of Arts, Culture, Science and Technology to the Minister of Finance requesting he review existing tax legislation as it relates to donations to the arts (copy attached). We believe that more visible support of our position, from the Department and Ministry, might lead to a positive outcome with long term benefit for arts organisations
10. Statistical analyses identifying the value of the arts sector as a contributor to the national fiscus would further reposition the arts in the minds of the business community (potential donors), educators and the general public. This would place a readily understandable and quantifiable value on something that is largely intangible. This requires major cross- departmental intervention (DAC, DTI and Treasury).

ENDS

1. Business and Arts South Africa ("BASA") is a non-profit organisation incorporated in accordance with section 21 of the Companies Act, 1973. BASA's role is to promote and facilitate donations and sponsorships from the corporate sector to institutions and individuals involved in arts and cultural activities. Our objectives are to promote and encourage mutually beneficial and sustainable business-arts partnerships that, over the long term, benefit the wider community. This is predicated on the assumption that the arts and cultural activities do have real value for our society, whether viewed from a social or economic perspective or in terms of individual and community development.
2. It has come to the attention of BASA that, under Section 18A of the Income Tax Act, 58 of 1962 ("the Act"), public benefit organisations which are involved in the advancement, promotion and preservation of arts, culture or traditional customs within the Republic of South Africa ("Arts, Culture and Heritage PBOs") have been afforded significantly fewer tax advantages than other public benefit organisations. We are concerned that, once again, arts and culture are ranked below more readily accepted social priorities.
3. We accordingly attach as Annex "A" to this letter, our formal proposal for the regulations which may be promulgated by the Minister of Finance, and which would, in appropriate circumstances, entitle Arts, Culture and Heritage PBOs to be granted Section 18A status, in terms of the applicable provisions of the Act. The reasoning for our proposal, as well as an outline of our understanding of the current status of arts and cultural organisations in terms of the Act, is set out below.

2. Current tax position of Arts, Culture and Heritage PBOs

1. Section 30 of the Act sets out the requirements for an organisation to qualify as a public benefit organisation ("PBO"). Part I of the Ninth Schedule to the Act sets out those activities which are recognised as public benefit activities for the purposes of section 30 ("section 30 activities"). A PBO which carries on one or more of the section 30 activities will be exempt from income tax under section 10 (1)(cN) of the Act (and exempt from certain other taxes, eg stamp duty, under various other sections). This is a tax benefit in the hands of the PBO itself.
2. Section 18A of the Act sets out the requirements in order for a PBO to be approved such that donors may deduct their donations to such a PBO from their taxable income. In order to qualify under section 18A, a PBO must carry out one or more of the public benefit activities set out in Part II of the Ninth Schedule to the Act ("section 18A activities"). This is an important tax benefit in the hands of the donor as tax payer.
3. We have noted with concern that, while "the advancement, promotion or preservation of the arts, culture or customs" is recognised as a section 30 activity, it is not recognised as a section 18A activity. The effect of this is that while Arts, Culture and Heritage PBOs enjoy exemption from income tax, donors who make genuine, bona fide, philanthropic donations are not entitled to deduct their donations to such Arts, Culture and Heritage PBOs from their taxable income under Section 18A.

1. In the absence of any tax concessions or other incentive for business to support the arts, BASA has consistently advocated sponsorship of the arts to encourage business to engage with the arts sector on the basis of returns for both parties.
2. As it stands, corporate sponsors are able to deduct sponsorships / advertising costs in terms of section 11 of the Income Tax Act. There are, however, a number of reasons why this is insufficient, for example:

• there is no similar tax concession for an individual who wishes to sponsor or donate to Arts, Culture and Heritage PBOs;
• many arts organisations working within rural or under served communities are unlikely to attract corporate sector funding, which tends to be directed to higher profile projects that offer immediate tangible benefits, such as health and education; and to PBOs which are approved under Section 18A; and
• a potential sponsor will "cherry-pick", seeking the most effective vehicle for a particular commercial purpose; arts and culture activities deemed less suitable for a company's own commercial purposes will tend to be ignored.

1. There is a need to encourage greater philanthropic donations on the part of individuals and companies, whose donations whether in cash or in kind will otherwise not qualify as sponsorship and therefore for deduction under the general deduction formula. Indeed, a cursory glimpse at some of the major international arts institutions illustrates how important philanthropic donations of individual and family trusts have been in the advancement, promotion and preservation of arts and culture around the world.
2. There is no doubt that, where Arts, Culture and Heritage PBOs do not have section 18A approval, this will not only inhibit donations to the arts from companies, trusts and private individuals, but will also endorse the perception that the arts are a luxury without greater benefit to society. For example, major art galleries within South Africa no longer have an acquisitions budget. Without donations they are unable to purchase new works by South African artists and are thus unable to keep our heritage where it belongs, at home.
3. Given that subsidy is vital for the arts to grow and to survive, and that the arts do bring social benefits, it is imperative that private sector involvement at whatever level be encouraged and sustained. On this basis, we respectfully request that the exclusion of the promotion of arts and cultural as section 18A activities be reviewed.

1. We believe that the requirements in Section 30 and Section 18A in the Act are sufficiently stringent to ensure the financial and governance bona fides of an Arts, Culture and Heritage PBO – assuming of that these are properly monitored by SARS. It appears, however, that it may be considered necessary for there to be some other objective assessment of an Arts, Culture and Heritage PBO.
2. We are advised that the Minister of Finance may prescribe additional regulations with which a PBO carrying on any specific public benefit activity (such as the promotion of arts and culture) must comply in order to be approved for purposes of Section 18A.
3. We have set out in Annex "A" to this proposal, our suggestion as to what additional criteria may be considered reasonable to impose on Arts, Culture and Heritage PBOs seeking approval under Section 18A.

1. For purposes of being granted Section 18A status under the Income Tax Act, 1961, the founding document of a public benefit organisation which carries on any of the following activities:

1. the advancement, promotion or preservation of the arts, culture or customs;
2. the promotion, establishment, protection, preservation or maintenance of areas, collections or buildings of historical or cultural interest, national monuments, national heritage sites, museums, including art galleries, archives and libraries,

(such a public benefit organisation shall, for purposes of this clause, be referred to as an "Arts, Culture and Heritage PBO"), must expressly provide that:

1. the Arts, Culture and Heritage PBO shall at all times
0. be in good standing with one or more of the following statutory organisations: the National Arts Council; the South African Heritage Agency; the National Film and Video Foundation, or such organisations as are from time to time recognised by the South African Revenue Service ("SARS"); or
1. be approved or registered with one or more of the following voluntary industry associations: Business and Arts South Africa; Performing Arts Network of South Africa; Visual Arts Association of South Africa;, or such organisations as are from time to time recognised by SARS;
2. the Arts, Culture and Heritage PBO shall provide SARS with written confirmation of the above every year;
3. the works and activities of the Arts, Culture and Heritage PBO shall be open to the public in terms of access as participants and/or audience;
4. the activities of the Arts, Culture and Heritage PBO shall include a reasonable number of public performances, exhibitions or events during the course of each year;
5. the object and activities of the Arts, Culture and Heritage PBO must be bona fide in the interests of promoting arts, culture, languages, customs or the heritage of the Republic;
6. the activities of the Arts, Culture and Heritage PBO must include a meaningful educational component, having due regard to the nature of the Arts, Culture and Heritage PBO's activities.

26^th January, 2004

Mr. Trevor Manuel

Minister of Finance

P O Box 29

Cape Town
8000

Fax. 021 461 2934/012 315 5372

Dear Minister Manuel,

Approval of Arts, Culture and Heritage PBOs

Early last year we approached you through the kind offices of the Minister of Arts and Culture, Dr. Ben Ngubane, to express our concerns regarding the status of such PBOs under this section, and to request that this be reviewed taking into consideration the prejudicial effect such exclusion has on this sector. We understand that you may, in terms of the Act, exercise your discretion to amend such matters should you deem it appropriate.

At Minister Ngubane’s request, we have drafted a formal proposal for your consideration, taking advantage of existing controls put in place by the South African Revenue Service. This proposal, together with an introductory text that gives a clear rationale for any possible amendment, has been forwarded to Minister Ngubane for his attention, and we have taken the liberty of copying this document to you herewith.

We would be most grateful if you would review our proposal, and look forward to hearing from your office in this regard.

Thank you for your consideration.

Yours sincerely,

MARY SLACK

CHAIRMAN

cc. The Honourable Minister B.S. Ngubane, Arts, Culture, Science & Technology

26^th January, 2004

Dr. B.S. Ngubane

Minister of Arts, Culture, Science and Technology

Private Bag X9156

Cape Town

Fax: 021 461 4537/012 324 2687

Dear Minister Ngubane,

Approval of Arts, Culture and Heritage PBOs

On 24 January 2003, we approached you to discuss our concerns regarding the above and, following our initial proposition, you indicated that you had spoken to the Minister of Finance and that we should put together a formal proposal for Minister Trevor Manuel’s consideration and comment.

We would like to thank you for your kind advice and for facilitating this process on our behalf. After lengthy discussion with legal advisors, we have drafted a formal proposal for a mechanism to provide effective oversight and control for arts organizations seeking Section 18A status, taking advantage of existing controls put in place by the South African Revenue Service. We attach the proposal, together with introductory text as earlier submitted to you, and would be very grateful if you would take the matter up once more with the Minister of Finance.

We have, in the meantime, recognizing that you have an extremely busy schedule, taken the liberty of copying this correspondence to Minister Manuel’s office.

May I, on behalf of my Board and CEO, thank you once again for all you have done to support us in this endeavour, and we look forward to hearing from you and your colleagues at the Ministry of Finance.

With kind regards,

MARY SLACK

CHAIRMAN

cc. Honourable Minister Trevor Manuel, Finance