From Barriers to Incentives: Reforming China’s Cultural Donation Tax System Based on U.S. Experience

Abstract

The core of the United States’ tax incentive policies for the cultural industry is anchored in Section 501(c) of the Internal Revenue Code. By offering tax incentives, these policies incentivize individuals and enterprises to make donations to non-profit cultural institutions, thereby fostering the prosperity and development of the U.S. cultural industry. China’s tax incentive policies for cultural donations are categorized into three types: those applicable to enterprises, individuals, and special donations, with variations in the deduction benefits afforded by each category. In comparison, China’s tax incentives for cultural donations have shortcomings, including excessively lengthy approval processes, inadequate coverage, fragmented management, and insufficient supervision. Drawing on the experience of the U.S. tax system, measures such as simplifying the registration procedures for non-profit cultural organizations, enhancing tax declaration requirements, exploring industry self-governance mechanisms, and establishing robust supervision frameworks constitute crucial pathways to advancing the high-quality development of China’s cultural industry.

1. Introduction

China is a nation steeped in rich culture heritage, where culture plays a vital role in national governance. As Xi Jinping had emphasized, culture stands as a cornerstone for promoting high-quality development. In contemporary times, the role of China’s cultural industry in economic activities has become increasingly prominent. Culture provides value guidance for high-quality development. Vigorously developing the cultural industry and demonstrating the vitality of socialist cultural innovation and creation not only serves as a strong underpinning for enhancing national cultural soft power and the international influence of Chinese culture but also is of great significance for boosting cultural confidence and forging the brilliance of socialist culture.

Cultural investment, which embodies both “economic attributes” (such as cultural industry revenue and asset appreciation) and “public attributes” (such as cultural heritage protection and public cultural services), is often constrained by factors including investment costs, return cycles, and risk expectations in its decision-making logic. Fiscal incentives intervene in market signals through policy tools and exert direct and far-reaching impacts on cultural investment from four dimensions: lowering investment thresholds, sharing investment risks, guiding investment directions, and improving the investment ecosystem.

Cultural products (such as public cultural venues, intangible cultural heritage protection, and public welfare performances) mostly possess non-excludability and non-rivalry, making them typical public goods. Their core value lies in social benefits (e.g., cultural inheritance, esthetic improvement, and social cohesion), yet such value is difficult to quantify using market prices. Market failure in the cultural industry manifests not only in insufficient supply but also in the difficulty of measuring artistic value through prices.

The need for tax preferential policies for donations in the cultural field essentially stems from addressing the inherent contradiction between the market and the attributes of culture through institutional design. Tax incentives actually represent the government “footing the bill” for the “positive externalities” of public cultural goods. By means of tax reductions and exemptions, the social positive externalities of cultural donations are “internalized,” enabling social capital to participate in the supply of public cultural goods, incentivizing an increase in such supply, and filling the gap left by the sole supply from the market and the government.

Weisbrod, Throsby, and Schuster emphasized the role of cultural donations in enhancing the diversity of the art market and accumulating social capital. Toepler and Brooks pointed out that the 501(c)(3) mechanism has promoted the financial independence of the non-profit cultural sector. Ginsburgh and Throsby explored the complementary relationship between cultural financial subsidies and private donations. Liu Jinhong, Huang Heqing, and Guo Xiaogang pointed out that China’s cultural donation system has problems such as slow approval, narrow coverage, and weak incentives.

Nowadays, countries around the world such as Germany, France, and Japan have all implemented tax incentive policies for cultural donations, which have promoted the prosperity of their respective national cultural industries to a certain extent.

Germany issued the Act on Non-Profit Organizations and Donations, which relaxed tax regulations on citizens’ participation in relevant activities: donation income is exempt from income tax if it does not exceed the upper limit of 20%, and the tax-exempt amount for establishing a foundation was increased from 300,000 euros to 1 million euros.

France has implemented tax rules on donations and inheritances. For cultural donations, individuals can obtain a 66% tax credit, enterprises can receive a 60% tax reduction, and large-sum donations to specific cultural institutions are eligible for a maximum 75% tax credit.

Japan uses the “Hometown Tax” system to encourage people to contribute to their hometowns’ development through voluntary donations. The portion of donations exceeding 2000 yen can be used to reduce the donor’s personal residence tax or personal income tax of the following year at a certain rate.

Tax incentives remain the core measure in Western countries’ preferential policies for cultural donations, covering various forms such as tax reductions, tax credits, and tax deductions.

The United States stands as the world’s most developed country in terms of the cultural industry, where the cultural industry is a well-deserved pillar of its economy and a key embodiment of U.S. soft power. The U.S. primarily supports the development of its cultural industry through the formulation of a series of tax and financial incentive policies.

In the field of cultural economics, cultural subsidies and cultural tax incentive policies are not only tools of cultural policy but also important levers for regulating the cultural market and promoting the development of the cultural industry. Their significance at the economic level mainly lies in correcting market failures, as cultural products often suffer from insufficient spontaneous supply in the market. The new growth theory holds that the market tends to focus on “taking” rather than “inputting”. In the early stage of cultural industry development, its internal driving force is insufficient, while tax incentives can reduce the costs of cultural production and consumption and stimulate the supply of more high-quality cultural products. This, in turn, enhances the core competitiveness of the cultural industry. Given that the cultural industry requires high initial investment and has a long return cycle, if the government can provide financial support and tax reductions, it can help enterprises get through the growth period, form economies of scale, and participate in domestic and international competition. Moreover, it can drive the development of tourism, transportation, catering and other industries, forming a “culture + economy” chain.

It can be said that tax incentive policies serve as a stimulating factor, injecting vitality into the cultural industry. They not only enable the general public, especially low-income groups, to access cultural services and promote cultural equity but also enhance social cohesion. Furthermore, they play a catalytic role in helping a country’s culture gain a foothold in the global cultural market and boosting its international influence and communication power.

The U.S. government initiated the collection of personal income tax in 1913, and as early as 1917, it explicitly stipulated the exemption of non-profit cultural groups and institutions from income tax, while also providing tax reductions for donors. These measures were designed to encourage investments from foundations, large corporations, and individuals, and to channel social wealth into cultural development. In 1965, additional regulations were introduced, permitting donations exceeding the annual tax-deductible limit to be carried forward for a period of up to five years. Through its cultural donation tax system, the U.S. government has secured a stable source of funding and a strong willingness to donate for the development of the cultural industry, thereby providing a legal and institutional guarantee for the global ascendance of U.S. cultural soft power.

The core of the U.S. tax incentive policies for the cultural industry lies in Section 501(c) of the Internal Revenue Code. By means of tax incentives, it encourages individuals and enterprises to make donations to non-profit cultural institutions, thereby driving the prosperity of the cultural industry. This section plays a pivotal role in the development of the U.S. cultural industry.

2. The Impact of Section 501(c)(3) of the U.S. Tax Code on the Cultural Industry

Section 501(c) refers to Subsection c of Section 501 in Chapter 26 of the U.S. Internal Revenue Code (also referred to as the “Tax Code”). Specifically, Section 501(c)(3) delineates the eligibility criteria and application procedures for various organizations to obtain exemption from federal income tax, which stipulates that donors making charitable contributions to 501(c)(3) organizations are entitled to corresponding federal income tax incentives. To maximize tax benefits in the United States—including exemption from income tax for the organization itself and the highest possible tax incentives for donors—an organization must obtain 501(c)(3) status and be certified by the Internal Revenue Service (IRS) as a public charity or a private foundation. Consequently, 501(c)(3) organizations are commonly designated as charitable organizations and require IRS certification. These organizations are non-profit in nature and are deemed to be public-interest entities that serve the general welfare. Please see the

Table 1. To qualify for an 501(c)(3) status organization criteria.

1	The organization must be established exclusively for charitable, educational, religious, scientific, literary, public safety testing, or cruelty prevention to children or animals purposes
2	The operations of the organization must not serve the private interests of its founders or shareholders
3	The organization must refrain from engaging in activities that influence legislation or participating in political campaigns
4	The organization must be recognized as either a public charity or a private foundation

.

It is noteworthy that, with the exception of “public safety testing” organizations under Section 501(c)(3), all other 501(c)(3) organizations are eligible to receive tax-deductible donations. Various cultural and artistic organizations—such as museums, art groups, historical and cultural societies, and art festivals—may apply to become non-profit organizations and avail themselves of tax incentives for cultural donations, provided they comply with the provisions of Section 501(c)(3).

Under the framework of Section 501(c)(3), once an organization meeting the aforementioned criteria submits an application to tax authorities to become a non-profit organization, it must consistently adhere to a non-profit mission, and its operations must be oriented toward advancing its stated cause.

Like taxpayers, 501(c)(3) organizations are obligated to file annual tax returns. In the event that the IRS identifies irregularities, it may revoke the organization’s tax-exempt status. The IRS website publishes revocation rulings under the section titled “Revocations of 501(c)(3) Determinations.” From the date of publication, the organization no longer qualifies to receive tax-deductible donations. This not only results in a substantial increase in the organization’s tax burden but may also sever its original sources of funding. According to the revocation rulings published on the IRS website, the information typically includes the organization’s name, city and state, internal revenue bulletin number, announcement number, publication date, effective date of revocation, and pending litigation notice (if applicable), along with a link for further inquiries.

However, this does not encompass organizations whose tax-exempt status was automatically revoked due to their failure to file Form 990 for three consecutive years. For such organizations, the effective date of the automatic revocation of tax-exempt status is generally the deadline for filing the third annual return. Following the revocation, the organization may submit an application to reinstate its tax-exempt status. If the application is approved, the IRS will formally recognize the reinstatement of the organization’s tax-exempt status.

Although the U.S. has successively established institutions such as the National Endowment for the Arts (NEA), the National Endowment for the Humanities (NEH), and the Institute of Museum and Library Services (IMLS)—which have played an important and positive role in providing funding to non-profit cultural institutions and encouraging cultural development—these remain the primary government agencies supporting non-profit cultural institutions in the United States to this day. Nevertheless, the financial support provided by federal government agencies is limited, generally not exceeding 50% of an organization’s funding requirements. Approximately half of the funding must be raised by the applicant from non-governmental sources [1] (p. 123). Statistics indicate that the federal government invests approximately $1.1 billion annually in the arts, while sponsorships from state and local governments, as well as enterprises, amount to over $5 billion [2] (p. 57). From the perspective of the development of the U.S. cultural industry, it can be observed that since the early 20th century, museums, orchestras, libraries, opera houses, and other institutions have all applied to become non-profit organizations eligible for tax exemption. This series of tax incentives has significantly encouraged donations to cultural and artistic organizations from all sectors of society. It not only provides tangible economic benefits to donors but also offers stable financial support to cultural and artistic organizations, thereby driving the prosperity of the U.S. cultural industry and the formation of its cultural hegemony.

2.1. Stimulating Social Enthusiasm for Investing in the Cultural Industry

501(c)(3) organizations are entitled to preferential policies, including exemption from income tax and tax incentives for donors who contribute to them. These benefits are manifested in the following three aspects:

They are permitted to raise donations from the public nationwide, and such donations must be exclusively allocated to cultural, technological, educational, charitable, or other public-interest undertakings.

They are eligible for tax-exempt status, meaning that the donated income they raise is exempt from federal and state corporate income taxes. However, if a non-profit organization engages in commercial activities unrelated to its tax-exempt purposes, the income generated from such activities is subject to corporate income tax.

Donors may claim their donations as deductible expenses for tax purposes. For donations to public charities and private operating foundations, donors may deduct up to 50% of their adjusted gross income (AGI), with any excess amount carried forward for up to five subsequent years. For donations to private foundations, the maximum deductible limit is 30% of AGI, and any excess cannot be carried forward. Additionally, 501(c)(3) organizations also enjoy other privileges, such as discounted postage rates, group life insurance and medical insurance for employees, exemption from certain insurance premiums for artworks held by museums, and exemption from customs duties when purchasing artworks from abroad.

In practice, for many U.S. museums, the most significant advantage of being a 501(c)(3) organization lies in their ability to accept donations (whether in cash or in-kind). When a donor makes a contribution to a 501(c)(3) organization, the donation amount can be deducted from the donor’s federal income tax, and the 501(c)(3) organization receiving the donation is also exempt from paying federal income tax on that amount. The primary tax types for which donors receive benefits are income tax and estate tax. In principle, as long as a donor contributes to a non-profit organization that meets the tax-exempt criteria specified in Section 501(c)(3), they are eligible for income tax incentives. In contrast to income tax, the U.S. tax code imposes no maximum limit on the amount of donations eligible for incentives from estate tax and gift tax [3] (p. 83).

For instance, in 2023, the National Endowment for the Arts (NEA) collaborated with Midwest Arts to provide grants totaling $1.075 million to 62 non-profit organizations [4]. The New York Philharmonic Orchestra generated a total revenue of $683 million between 2019 and 2024, of which over $447 million originated from donations, accounting for an average of 65% of its total annual revenue [5]. In 2024, the Lincoln Center Theater achieved a total revenue of $65 million, with donations constituting 45% of that amount [6]. Theaters categorized as “Off Broadway” [7] (p. 47), which have seating capacities ranging from 99 to 500, and “Off Off Broadway” theaters, with fewer than 99 seats [8] (p. 288), are all non-profit organizations supported by the government and possess public welfare attributes. The social funding they receive is fully tax-exempt, and their operating income also qualifies for tax exemption. Ticket prices for such non-profit theaters are generally relatively low, mostly ranging from $80 to $100 per ticket, whereas ticket prices for commercial Broadway shows typically exceed $200. As non-profit theaters, any profits generated from their operations cannot be distributed; instead, they must be reinvested into their undertakings.

Non-profit performing arts organizations constitute an important component of U.S. non-profit organizations. Their mission is to provide high-quality entertaining and educational cultural activities to local communities, and they exert significant social influence. On the other hand, while delivering public cultural services, these non-profit theaters also provide a nurturing environment for excellent original productions, cultivate a large number of outstanding talents, and lay the foundation for the vigorous development of commercial theater. The Broadway theater industry has become a pillar of New York City’s cultural industry. Its significance is not only reflected in ticket sales but also in the substantial revenue it brings to the tourism industry, making it a crucial economic driver for New York.

In 2023, the U.S. cultural industry created value exceeding $1.2 trillion, accounting for 4.2% of the U.S. GDP [9]. Its growth rate was more than twice that of the overall U.S. economy, and the value added of most cultural industries had surpassed the levels recorded in 2019, prior to the COVID-19 pandemic.

2.2. Donors May Impose Restrictions on the Use of Funds

In contrast, many European countries primarily adopt direct government expenditure approaches. Some European countries do not allow pre-tax incentives for charitable donations at all, while others permit such incentives only under extremely stringent conditions. For example, Luxembourg imposes strict restrictions on eligible recipients: donations to national or municipal museums qualify for pre-tax incentives, but donations to private museums do not. In countries such as Denmark and New Zealand, the upper limit for charitable donation incentives is relatively low, which does not support large-scale donations. In contrast, U.S. tax law provides substantial incentives and flexibility for private donations. The United States is the only country that allows both pre-tax incentives based on the market value of donated assets and exemption from capital gains tax. Furthermore, donors may specify in detail how their donated funds—including portions implicitly subsidized by the government—are to be utilized, a practice that is largely not feasible in other countries [10] (p. 64).

For example, according to data from the New York Philharmonic Orchestra’s official website, between 2019 and 2024, its restricted donations amounted to $240 million, accounting for 54% of the total $440 million in donations received. This is also corroborated by the funding scope of the Shubert Foundation, which has an endowment of $300 million. The foundation provides grants to U.S. non-profit and professional local theaters and dance companies, focusing on five major areas: theater, dance performances, art-related institutions, education, and public services [11] (p. 31).

2.3. Fundraising Constitutes a Sustained Priority Throughout the Development of the Cultural Industry

Owing to the large number of 501(c)(3) organizations in the United States, they confront a practical challenge: if they remain obscure and receive no donations, they will struggle to sustain their operations. Therefore, many organizations allocate a portion of their annual budget to fund fundraising efforts. Correspondingly, they also incur administrative expenses, which together constitute “supporting services expenses” (or functional expenses).

For example, over the past 10 years, the New York Philharmonic Orchestra’s fundraising expenses have accounted for an average of 5.7% of its total annual revenue, with the highest proportion reaching 9.87% in 2022 and the lowest at 2.57% in 2021. Its administrative expenses have accounted for an average of 18.8% of its total annual revenue, peaking at 33.9% in 2022 and dropping to a low of 11.68% in 2021.The details please see the

Table 2. Fundraising and Administrative Expenses of the New York Philharmonic Orchestra. (Unit: Thousand US Dollars).

Year	Fundraising Expenses	Administrative Expenses	Total Annual Expenses	Proportion of Fundraising Expenses (%)	Proportion of Administrative Expenses (%)
2015	4670	13,714	103,234	4.52	13.28
2016	4679	14,961	115,225	4.06	12.98
2017	4722	15,510	98,029	4.82	15.82
2018	4355	17,342	80,736	5.39	21.48
2019	6177	18,557	97,549	6.33	19.02
2020	5569	20,236	112,838	4.94	17.93
2021	4155	18,912	161,898	2.57	11.68
2022	5925	20,336	59,996	9.87	33.90
2023	8215	24,325	113,413	7.24	21.45
2024	9973	27,833	137,646	7.25	20.22
Average				5.7	18.8

Note: In 2022, the orchestra incurred an investment loss of $32,583,705, leading to a significant reduction in its annual revenue. Compiled based on annual report data from the official website of the New York Philharmonic Orchestra.

.

2.4. Robust Supervision Mechanisms

Organizations that obtain 501(c)(3) status must maintain a high level of financial transparency and regularly submit Form 990 to the IRS, reporting their financial status and activities. This ensures that donors’ funds are utilized for the specified tax-exempt purposes and prevents misuse. As previously noted, failure to file Form 990 series returns for three consecutive years results in the automatic revocation of tax-exempt status. Additionally, 501(c)(3) organizations are required to publicly release annual reports and financial statements on a regular basis (typically annually) to accept supervision from both society and the government.

Furthermore, there is professional oversight from other 501(c)(3) organizations, which conduct objective evaluations of the financial information disclosed by these entities. For example, Charity Watch, recognized as the United States’ most independent and authoritative charity watchdog, aims to provide fair and transparent assessments and valuable tools. It independently supervises charitable organizations, exposes abuses within non-profit organizations, and safeguards the interests of donors. By conducting in-depth analyses of non-profit organizations’ audited financial statements, tax forms, fundraising contracts, and other reports, it rates charitable institutions on a scale from “A+” to “F”, publishes lists of top-performing charities, and maintains a “Hall of Shame” for charitable organizations. This enables donors to identify and support trustworthy non-profit organizations. Another example is Charity Navigator, an organization dedicated to evaluating charitable institutions. Members of the general public may query the financial status and ratings of various organizations on its website to serve as a reference before making donations.

3. China’s Policies on Tax Incentives for Cultural Donations

Currently, China’s tax incentive policies for cultural donations fall under the broader category of public welfare donations, primarily aimed at promoting the development of cultural undertakings. These tax incentives are mainly based on provisions in higher-level laws such as the Individual Income Tax Law of the People’s Republic of China and the Implementation Regulations of the Individual Income Tax Law of the People’s Republic of China. The specific implementation adheres to the guidelines outlined in documents such as the Announcement of the Ministry of Finance and the State Taxation Administration on Policies Concerning Individual Income Tax for Donations to Public Welfare and Charitable Undertakings, and the Announcement on Matters Concerning Pre-tax incentives for Public Welfare Donations. Please see the Appendix A.

The Announcement on Matters Concerning Pre-tax incentives for Public Welfare Donations constitutes China’s latest effective document governing pre-tax incentives for public welfare donations. It stipulates that expenses incurred by enterprises or individuals for donations to public welfare and charitable undertakings—made through public welfare social organizations, state organs at or above the county level, or other relevant government departments, and in compliance with legal provisions—are eligible for deduction when calculating taxable income in accordance with tax laws [12]. For the purpose of this announcement, “public welfare and charitable undertakings” shall conform to either the four categories of public welfare undertakings specified in Article 3 of the Donation Law of the People’s Republic of China on Public Welfare Undertakings or the six categories of charitable activities defined in Article 3 of the Charity Law of the People’s Republic of China.

3.1. Regarding the Certification of Deduction Eligibility

The scope of public welfare social organizations primarily includes charitable organizations, other social organizations, and mass organizations that have been legally established or registered and have obtained the qualification for pre-tax deduction of public welfare donations in accordance with specified criteria and procedures. The specific process involves the financial, tax, and civil affairs departments at or above the provincial level completing the confirmation of eligibility for pre-tax deduction of public welfare donations and publishing the list of eligible organizations, along with the effective date of their qualification, by the end of each year. Once confirmed, this qualification remains valid for three years and is recognized nationwide. For social organizations registered with civil affairs departments at the provincial level or below, the financial, tax, and civil affairs departments of provinces, autonomous regions, municipalities directly under the Central Government, and cities with independent planning status shall follow the same procedures.

3.2. Regarding the Cancellation of Deduction Eligibility

A public welfare social organization shall have its eligibility for pre-tax deduction of public welfare donations revoked if it falls under any of the following circumstances. A public welfare social organization shall have its eligibility for pre-tax deduction of public welfare donations revoked and shall not reapply for such eligibility within three years from the year of revocation if it falls under any of the following circumstances. A public welfare social organization shall have its eligibility for pre-tax deduction of public welfare donations revoked and shall be permanently ineligible for reapplication if it falls under any of the following circumstances. Please see the Appendix B, Appendix C and Appendix D.

3.3. Regarding Deduction Vouchers

When accepting donations, public welfare social organizations, state organs at or above the county level, and other relevant government departments shall use public welfare donation vouchers supervised (or printed) by the Ministry of Finance or the financial departments of provinces, autonomous regions, or municipalities directly under the Central Government, in accordance with their administrative level, and affix their official seals to the vouchers. Enterprises or individuals claiming pre-tax incentives for eligible public welfare donation expenses shall retain relevant vouchers for verification.

3.4. Regarding Donations of Non-Monetary Assets

For donations of non-monetary assets received, the donation amount shall be determined based on the fair value of the assets. When making a donation to a public welfare social organization, a state organ at or above the county level, or another relevant government department, the donor shall provide documentation specifying the fair value of the donated non-monetary assets. If such documentation is not provided, the recipient of the donation shall not issue a donation voucher to the donor.

In summary, China’s policies on pre-tax incentives for public welfare donations primarily consist of three components:

The policies governing pre-tax incentives for enterprise donations include three key aspects:

No land appreciation tax shall be levied on taxpayers who donate real estate to non-profit organizations without receiving any income in return.

For donations made by enterprises to public welfare undertakings through public welfare social organizations, government departments at or above the county level, or public welfare mass organizations, the portion of the donation that does not exceed 12% of the enterprise’s annual total profit is allowed to be deducted when calculating the enterprise’s income tax. Any amount exceeding 12% of the annual total profit may be carried forward and deducted in the subsequent three years when calculating taxable income.

For non-public offering foundations established on or after 1 January 2008, donors who contributed to the foundation’s initial endowment may claim a pre-tax deduction when the foundation conducts its annual enterprise income tax final settlement and consolidated tax filing in the year it obtains the qualification for pre-tax deduction of donations [13] (p. 53).

The portion of a donor’s donation amount that does not exceed 30% of their declared taxable income may be deducted from their taxable income. The specific deduction method involves filing a claim through the Individual Income Tax APP. Individuals claiming pre-tax incentives for eligible public welfare donation expenses shall retain relevant vouchers for verification.

In China, donations made by social forces to public welfare undertakings such as educational institutions, elderly care service facilities, and youth activity centers are eligible for full deduction before the calculation of enterprise income tax and individual income tax. However, such donations must be made through public welfare institutions; direct donations do not qualify for pre-tax incentives.

In June 2023, the Guidelines on Tax and Fee Incentive Policies to Support Inclusive Development detailed various incentive policies. Among them, tax incentives for the cultural sector are mainly reflected in the following aspects: exemption from import value-added tax (VAT) for charitable materials donated by foreign donors; exemption from stamp duty on property rights transfer documents for property donated to the government, schools, social welfare institutions, or charitable organizations; exemption from deemed sales tax for activities conducted free of charge for public welfare purposes or targeting the general public; exemption from real estate tax for self-used properties of parks and scenic spots with historical significance; exemption from urban land use tax for self-used land of parks and scenic spots with historical significance; exemption from VAT for income derived from the sale of first-round tickets by cultural venues for cultural services; exemption from VAT for income derived from ticket sales by religious venues for cultural or religious activities; and the option for urban film screening services to adopt the simplified tax calculation method for VAT payment [14].

At present, China’s Cultural Industry Promotion Law, which has been in development for 15 years, has not yet been promulgated. As a result, the role of tax incentives in the cultural industry remains limited. Key issues include restrictions on eligible entities, insufficient incentive intensity, and the limited effectiveness of government special funds allocated to the cultural industry. There is an urgent need to improve various tax policies related to cultural donations in the tax law.

4. A Comparative Study Between China and the United States

The U.S. cultural donation tax system has contributed to the prosperity of American culture. Since the 1950s, the United States has maintained its dominant position in the global cultural industry, with cultural enterprises continuing to exhibit strong growth momentum. Their derivative products, along with American values, have rapidly expanded their global reach through the continuous growth of market scale. Tax incentives for cultural donations are not only a fiscal incentive tool, but also an important component of the social trust mechanism and the cultural governance system. Match the cost issues of cultural sectors with tax system tools, and provide an assessable and replicable reform path. In conclusion, U.S. cultural policies are relatively flexible, and its preferential measures for cultural donations are convenient and highly operable. In contrast to China’s situation, China has also introduced a large number of relevant policies in the cultural field to support the development of the cultural industry. However, affected by the bureaucratic system, China’s preferential tax policies for cultural donations still have the following characteristics:

Stringent Approval and Overly Lengthy Processes: China imposes a relatively high threshold for pre-tax incentives on donations and implements strict supervision and management. Some foundations, charitable organizations, and public welfare mass organizations are not eligible to apply for tax-exempt donation status. Social organizations registered with the Ministry of Civil Affairs are supervised, managed, and evaluated by the ministry, which verifies their eligibility for pre-tax deduction of public welfare donations and provides preliminary opinions. The final list of eligible organizations is jointly published by the Ministry of Finance, the State Taxation Administration, and the Ministry of Civil Affairs, with the qualification valid for three years. Issues such as excessively long approval times exist in the approval and management process. For example, the list of organizations eligible for tax incentives is typically published only once or twice a year, which fails to achieve the desired social effect of effectively incentivizing donations.

Insufficient Coverage: The number of non-profit organizations with tax-exempt status is relatively small. Most social groups and unregistered grassroots organizations are not eligible for tax-exempt donation status, resulting in insufficient coverage. According to the List of Public Welfare Social Organizations Eligible for Pre-tax Deduction of Donations jointly published by the Ministry of Finance, the State Taxation Administration, and the Ministry of Civil Affairs, only 9 public welfare social organizations obtained eligibility for the 2022–2024 period, 168 for 2023–2025, 10 for 2024–2026, and 3 for 2025–2027 [15]. Social organizations registered with civil affairs departments at the provincial level or below follow the same procedures. Taking Jiangsu Province, which has the largest number of social organizations in China (71,000 [16]), as an example: 29 public welfare social organizations in the province obtained eligibility for the 2022–2024 period, 278 for 2023–2025, 59 for 2024–2026, and 13 for 2025–2027 [17]. This indicates that, compared to the total number of social organizations, the coverage of organizations eligible for pre-tax incentives is far from adequate. Specifically, in the cultural industry sector, the number of social organizations eligible for pre-tax incentives is even smaller, resulting in an insignificant tax incentive effect.

Fragmented Management Issues: Non-profit organizations in China that enjoy preferential tax policies face challenges related to evaluation, annual inspections, and standardized management. Due to the non-governmental nature of non-profit organizations, they are not subject to direct control by the government or enterprises. Non-profit organizations register with civil affairs departments, while tax incentives fall under the jurisdiction of tax authorities. The qualification for tax incentives is jointly determined and published by three departments: finance, tax, and civil affairs. Additionally, a multi-level management model exists at both the central and local levels, leading to fragmented and multi-tiered management both horizontally (across departments) and vertically (across administrative levels). A key aspect of tax deduction management for non-profit organizations in China lies in coordinating the evaluation, annual inspection, and daily registration management of these organizations during the approval process.

Inadequate Social Supervision: China has also established numerous industry associations and federations within the cultural sector, but their role remains limited. Influenced by the historical legacy of the planned economy, the mindset of “waiting for, relying on, and asking for” government support persists in the cultural industry, resulting in insufficient motivation for independent innovation and a lack of effective incentive mechanisms. This has become a factor constraining the development of China’s cultural industry. The U.S. experience demonstrates that when a society reaches a certain stage of development, a preferential tax system for cultural donations helps create a positive cycle, laying a solid social foundation for the development of the cultural industry. Today, as China’s national economy has achieved significant development and people’s living standards have continuously improved, formulating a tax incentive policy for cultural donations that aligns with China’s national conditions will promote the development of China’s cultural industry, which in turn will contribute back to society, forming a positive interaction. Specifically, efforts can be made in the following areas:

4.1. Simplifying Registration Procedures

For example, in the United States, once an organization registers as a non-profit entity, it uses a single registration number for both registration and subsequent management, facilitating effective government oversight. China should actively explore a management model for cultural non-profit organizations that suits its national conditions. For instance, civil affairs departments could be responsible for unified registration and management while requiring annual tax filings with tax authorities. The finance, tax, and civil affairs departments would no longer need to conduct cumbersome qualification certifications or set an expiration date for the tax-exempt status of non-profit organizations, ensuring the smooth implementation of tax incentives. Tax administration can be leveraged to supervise non-profit cultural organizations. Additionally, civil affairs departments could handle registration transfers, allowing non-profit cultural organizations to convert their registration type (e.g., to a private non-enterprise unit, a foundation, or a social group) if necessary and to have their activities certified. This would reduce administrative constraints on non-profit cultural organizations.

4.2. Strengthening Tax Declaration Management

Regardless of the type of preferential tax treatment they enjoy, all non-profit organizations should generally be required to file tax returns. The tax authorities would ultimately determine whether the organization’s income falls within the taxable scope and whether any tax obligations have been incurred [18] (p. 5). All non-profit organizations enjoying tax incentives must file regular tax returns with tax authorities, adhering to the principle of “who declares, who is responsible” to plug loopholes that could lead to tax evasion. If an organization is found to have engaged in fraud or misrepresentation, its qualification should be revoked in strict accordance with relevant regulations, and a ban should be issued. Furthermore, the development of charitable donations in the United States has benefited from the levying of estate tax. For individual donations, the U.S. estate tax rate is as high as 40%, which encourages wealthy individuals in the United States to channel their assets into public welfare undertakings. Charitable donation has become a common way for Americans to dispose of their private property. Exploring the introduction of an estate tax in China could be an effective means to encourage wealthy individuals to make donations to the cultural industry.

4.3. Exploring Industry Self-Governance Models

U.S. tax law requires non-profit organizations to establish their own management objectives and standards, undergo an application process, and pass an organizational review. The development of most non-profit organizations depends on their own operational capabilities. Drawing on the industrialized operation model of the U.S. cultural industry, China should further explore systems for industry self-governance and self-reliance, giving full play to the industry’s “self-sustaining” capabilities. This includes enhancing communication, exchange, and evaluation among industry players, strengthening industry cohesion, and reducing the burden on the government. Some scholars have pointed out that non-profit organizations must practice self-discipline. It is through self-discipline that they gain the trust of the public and the government, which in turn provides a solid foundation for policy formulation [13] (p. 54).

4.4. Strengthening Government and Social Supervision

Unified registration serves as an effective means of government supervision, facilitating enhanced management. Tax authorities should not only be responsible for tax collection and tax incentives but also supervise the financial transparency of non-profit organizations. On the basis of tax collection and management, non-profit cultural organizations should be required to publicly release annual reports and financial statements on a regular basis. This ensures that these organizations remain true to their original mission and operate in an open and transparent manner, thereby promoting the development of cultural undertakings.

Currently, China’s economic aggregate ranks second in the world, and its comprehensive national strength has risen to the forefront globally. As people’s living standards improve, their cultural demands are also growing. General Secretary Xi Jinping has pointed out that “the fundamental goal of cultural development is to meet the people’s multi-level cultural needs and safeguard the people’s cultural rights” [19] (p. 37). The high-quality development of the cultural industry is a crucial guarantee for satisfying the people’s multi-level cultural needs and realizing their cultural rights.