Trading PBOs: Advantages of Tax Exempt Status
I have, after a while of not serving on the Board of a Public Benefit Organisation (PBO), looked at the South Africa Revenue Services (SARS) Guideline for PBOs. Of course the major change regarding trading will have many positive and negative repercussions.
In the article ‘Trading PBOs - Advantages of Tax Exempt Status’, the wording leads one to believe that any trading, up to R100 000 or five percent of total revenue is exempt from Income Tax. Please assist me in understanding how this will negate the previous restrictions regarding PBOs trading for profit that is in competition with Tax paying entities.
May I should give an illustration of this:
A PBO which does not accept outside contributions but is self-supporting through member's contributions only sells literature. This literature, in the main, is imported from the International Office of the Organisation. The literature content is aimed at supporting the main public benefit activities of the PBO, most literature is sold to members but it is marked up and not charged at only a ‘cost recovery’ price. It is possible for non-members and other outside agencies to purchase literature from the PBO.
My main question is.... will this trading be permissible for a PBO, even if the new regulations of Tax Exempt Limits are applied and secondly would the trading be seen as ‘competition’ with regards other Literature retail outlets?
Maybe I am just playing Devil's Advocate here but all too often uninformed officers of PBOs are inadvertently breaking the tax laws and could be brought to book by SARS who now have the most amazing ‘smell a rat’ ability. SARS action could cost a PBO it's Tax Exempt status and worse.
I look forward to some lively debate among the experts.