Tax the Churches? This is How It Works in the World

The issue of taxes for churches has always been controversial. While many affirm that despite being non-profit institutions, receiving millions of dollars annually, they should pay taxes, others resort to freedom of expression and religious freedom to ensure that respecting that decision means leaving the church out of the tax system. Within the debate, it is also argued that many of the people who belong to the church pay taxes, so charging the church would be charging double the tax to those who attend or are part of a religious community.

This discussion has been intensified in Colombia by the recent change of government, because just a few days after the inauguration of Gustavo Petro, his Minister of Finance presented the first advances of the new tax reform, in which, among other things, maintains the exemption for churches to pay taxes.

Also read: How Do Wealth Taxes Work In Latin America?

The truth is that if we trace back in history, we can find that the tax exemption in churches comes from the bond between the Christian Church (which was later divided between the Catholic Church and Protestant Churches) and the State. This relationship began in the Roman Empire of Constantine, at which time, by strategy, the emperor made the decision to unify this belief to his form of government in order to expand. This tradition was maintained throughout the history of marriage between the Christian Church and the Western state. In medieval England, the exemption from taxes was justified in that the first relieved the burden of various tasks from the governments, for which they were a direct part of the States and should not be subject to tax systems. With the first constitutions of the American continents, this changed and there was a separation between church and state. However, the tax exemption remained. The argument? The same one we have today: freedom of religious expression.

The Panorama

In some countries, although there is no tax as such on churches, they do have tax obligations. For example, in Ecuador, churches do not have to pay income taxes, but they are not exempt from paying VAT as legal entities, nor from filing a declaration of assets since 2010. This is established under the Organic Law of Equality and Religious Freedom, that applies to all churches of all religions in the country. In Bolivia, Law 1169 has been applied since 2019, which states that churches owe current tax regulations, so they must pay taxes for activities that can generate taxes such as non-governmental organizations, educational institutions, media organizations or asylums.

In the case of Chile, churches are exempt from paying taxes if their activities are not commercial, but they must pay sales and service taxes. In this South American country, this debate was also experienced when the current president, Gabriel Borich, came to power. Another case is that of Mexico, one of the countries with the most parishioners; here the churches are exempt from taxes that come from tithes, offerings or donations, as long as these are destined exclusively for religious purposes. Likewise, houses of prayer, monasteries, convents, etc., can also avoid these taxes. However, for commercial activities, such as the sale of books, they are not exempt, as well as donations from companies or religious associations that are not authorized as taxpayers.

The case of India also stands out, one of the countries with the greatest religious diversity. Some years ago there was an attempt to control religious institutions. The proposal was not successful, and there is an idea that religious institutions also function as charitable organizations and the donations they receive even exempt the donor from paying a percentage of taxes. It only changed that if it is shown that the donation was not intended for charity, 30% of it must be paid. On the other hand, Estonia, one of the countries with the fewest exceptions in payment of the fiscal tax, charges this cost to all types of institution (including public buildings). The only ones that are exempt are the land where the churches are located.

In other places in the world, such as Denmark, Austria or Finland, Italy, Sweden, Croatia, Iceland or Switzerland, there is a church tax. In this, it is not the church that pays, but the members of the congregations who have a tax that is intended to support them financially.

With this tax, between 1% and 2% of the taxable income is charged to those who are part of the church. In the case of countries like Spain and Portugal, the church is also financed by its followers, but in this case it is voluntary and not compulsory before the State. We see then how the separation of church and state continues to be a discourse that is rarely put into practice and that the self-financing of the Catholic Church is far from being a reality, so the idea that it is part of a tax system is even further from that reality.

In the case of Latin America, we find ourselves with a very similar panorama to Europe. In this region, there are more than 40% of the followers of the Catholic and Protestant religion. Most countries still exempt churches from the tax system. In Argentina, for example, the state finances 8.8 million dollars a year for the Catholic Church and the bishops have a salary. In Peru, the government grants 800,000 dollars a year to the church and also covers the salaries of bishops and high officials of the church in their country. Here we see that the same model is followed as in Europe of the church tax.