Posts Tagged ‘Charities’

Giving generously but carefully

Sunday, December 12th, 2010

Introduction
It is the time of the year when requests for donations to business houses – including from my own experience, professional firms – increase from a trickle to a deluge. There is something about Christmas that makes most of us guilty if we turn down a request for a donation, not only from the more prominent charities but service organisations, churches and other groups. Unfortunately, there is no study or other information on the success of these efforts, the main purposes of which are to feed groups of disadvantaged children in poor communities, throw a party for senior citizens and make monetary donations to needy persons. To think that by one’s refusal some needy person will be deprived of a meal or the cheer which the opportunity to participate in an annual party brings is probably not only difficult, but conscience troubling.

Studies abroad have thrown up some interesting and some counter-intuitive findings that are themselves worthy of further analysis. For example, studies show that as a proportion of income, poorer households actually give more to charity: the poorest 10 per cent of households give 3 per cent of their income to charity, compared with the richest 10 per cent which give only 1 per cent of their income. Of course in dollar value, the 1% will far exceed the 3%. They also show that the level of donations rises with the proportion of females in the household, but the presence of children makes no significant difference. This would indicate that women are more generous and empathetic than their male counterparts, even though women on the whole earn or own far less than men.

Surprisingly, those not in work are likely to give significantly more than those in employment — by 20 per cent (conditional on their total spending). There is no significant difference between the employed and the self-employed. Compared with the wage-earner, the effect of being self-employed is to reduce the probability of giving by 11 percentage points, while being out of work reduces it by 7 percentage points. Both these effects are significant.

Political donations
Unfortunately in Guyana where even government information is hard to come by and where our institutions of higher learning are themselves short of resources, it is hardly surprising that there are no studies undertaken of this important measure of a caring and giving society. And perhaps arguably the most substantial form of donation in dollar terms but of questionable social value is that made by businesses to political parties. In that case both the donor and the recipient have an interest in secrecy and the labyrinthine path from donor to recipient would make a good case study for money laundering.

And we are only too aware that for businesses, political donations are an investment in protection money or for future favours, hence the reason for donations of varying sums to the political parties, often based on an assessment of their prospects of winning. And for many businesses with their non-political donations, their picture in the newspapers making the donation to some sport or charitable organisation is good business with column inches of picture and accompanying report being much less than the cost of a paid advertisement.

Charitable donations
Now let us return to genuine, charitable giving. Questions that arise are how much to give, the vehicle for giving and what other considerations should apply. For individuals the cost of giving is much more expensive than it is for businesses. Individuals get no tax relief for any donations whether to national organisations, charities or under deeds of covenant, with the latter opportunity having been taken away when other allowances such as mortgage interest, insurance premiums and family allowances were taken away. Not that it was always easy to make donations even under deeds of covenant, and one recalls the case of Peter D’Aguiar v the Commissioner of Inland Revenue where the Commissioner disallowed a payment of $4,200 per year covenanted by Mr D’Aguiar to the Citizens’ Advice and Aid Service (CAAS). That was before Guyana had abolished appeals to the Privy Council to which Mr D’Aguiar unsuccessfully appealed. The Privy Council held that the CAAS was not a charitable organisation and disallowed the deduction. And we think Mr Sattaur is tough!

There are three separate statutory provisions governing donations, two in the Income Tax Act and one in the Corporation Tax Act, but they all only apply to companies. Under section 35 of the Income Tax Act donations of money or property to the government for public purposes or to or to any prescribed institution or organisation of a national or international character in Guyana or elsewhere are deductible. There are only about eight such organisations which have been prescribed, the most recent being the Cheddi Jagan Research Centre. And under section 75 which is generally regarded as the Deed of Covenant section, the deed must be for a period exceeding two years and to “any ecclesiastical, charitable or educational institution, organisation or endowment of a public character within Guyana, or elsewhere as may be approved by the Minister for the purposes of section 7(e) of the Corporation Tax.” All section 7 (e) of the Corporation Tax Act does is exempt from the tax any such income.

The problem and uncertainty is that section 75 does not specifically require the approval to be publicised by way of an Order or notification while 7 (e) of the Corporation Tax Act requires the approval of the President, again without a requirement for publication. This certainly needs tidying up.

Charity laws
Even if we ignore these technicalities, we have the practical question as to who deserves our donations. Some form of charity laws were promised since 1991 when the Companies Act was passed, but we still have no such laws in Guyana. The word ‘charity’ is often used and confused with ‘not-for-profit,’ these being employed incorrectly and interchangeably. There are some charitable institutions that are in fact created by statute, such as the Guyana Red Cross and the Chest Society, which derive their existence and status from statute. Then there may be some churches that are given statutory recognition and authority to hold property, while the Boy Scouts Association Act seeks to “further and protect the activities and interests of the Boy Scouts Association of Guyana.”

Apart from this form which is done by parliament, a charity may incorporate itself under the Companies Act or the Friendly Societies Act, which place them under some form of regulatory control and hopefully give rise to some level of corporate governance. But does this really happen? All of these organisations, year after year, raise money from the public and no doubt many of them do excellent work, but that can hardly justify the complete absence of some form of public reporting and accountability. Some of them operate as self-perpetuating oligarchs that feel no compunction or obligation to report to the public or to those from whom they raise money. Compare this with a company that would find itself in trouble and in breach of the Securities Industry Act if it was to try to raise money from the public without observing the strictures of the law.

This state of affairs may be due to ignorance on the part of some, and in the case of others because of their conviction of the genuineness and the nobility of their cause that any question or challenge about accountability and governance would seem out of place and Dickensianly mean. But not only should this be mandatory and in the public interest but it is in the organisation’s interest as well. I am certain that donors would feel confident and may even be tempted to give more to an organisation that shows a healthy respect for accountability and for the donors.

Making the decision
So whom should you give your money to? Based on the recommendations of the American Institute of Philanthropy and the amount of money you propose donating you should consider the following:

1. Know who you are giving your donations to. Never give to a charity you know nothing about. Request written literature and a copy of the charity’s latest annual report. If a charity is unable or unwilling to provide you with the information you request, you may want to think twice about giving to it. Honest charities typically encourage your interest and respond to your questions.

2. Ask how much of your donation goes for general administration and fundraising expenses and how much is left for the programme services you want to support. Is your donation going to pay salaries and other administrative expenses or is the bulk of it to be applied to the programme that you wish to support. Most highly efficient charities are able to spend 75% or more on programmes. Keep in mind that newer groups and those that are working on less popular issues may find it necessary to spend a greater percentage on fundraising and administrative costs than well-established, popular groups.

3. Some charities and not-for-profit organisations engage in high pressure fund-raising strategies. You help the organisation when you ask them questions. Ask whether they have a bank account, whether officers are paid or volunteers, do they have annual meetings that are open to the press, and do they have audited financial statements. If the answer to any of these is ‘no’ you might seriously wish to consider whether you would support that charity.

4. Do not accept what they tell you about tax-deductibility. Remember that deductibility is based on meeting the strict criteria of section 35 of the Income Tax Act. Check with your accountant or your attorney if your donation is more than small change.

5. Bear in mind there is only so much you may be able to give. So choose wisely and with the best information at your disposal. But once you are satisfied that the charity is worthwhile, give generously if you can. There are many good charities that need your help to operate valuable programmes and provide needed services. When you give wisely, you will be giving more effectively.

Next week we look at the LCDS and the Norway money

Wanted: Charities and NGO legislation

Sunday, January 6th, 2008

Introduction

As civil society in Guyana has taken – or rather been given – an increasing role in public-spirited tasks such as fighting floods, AIDS, poverty and discrimination – perceived and real – providing legal aid or cheap meals for the poor, those civil society organisations seeking to formalise and institutionalise themselves face more than the usual challenges of resource limitation and fundraising. Despite the fact that many of these organisations are in fact doing or complementing the work of the state, they come up with one formidable hurdle which could be so easily removed by the state. The sad fact is that there is no legislative enabling environment for the promotion of civil society, while the tax laws effectively discourage giving and fundraising through creative business initiatives. Just consider how the tax laws would treat a not-for-profit entity that decides to carry on a business to raise funds to be used exclusively in financing its charitable work. The laws will treat the surplus on the business in the same way as it would any for-profit organisation, while disallowing the expenditure on the charitable activity as not being “wholly and exclusively incurred in the production of income”!

By contrast, countries ranging from Azerbaijan and Afghanistan to Malta, Mexico, Uzbekistan, Venezuela and Zimbabwe have either enacted or advanced legislation to facilitate that type of entity known by such names as non-governmental or not-for-profit organisations. Guyana therefore lags behind all these countries in NGO/civil society legislation which for all practical purposes is simply non-existent, although the reality is less clear, certainly more confusing and does not lend itself to simple determination.

State of uncertainty

The Civil Law Act of Guyana passed in 1916 provides that the law relating to charities shall be the law of England. The problem is that the charities law of England has changed beyond recognition since 1916, and indeed, as recently as 2006 the House of Commons consolidated and updated the law into the Charities Act 2006. That act defines charities by reference to the provision of benefits to the public over some thirteen purposes, including the arts, education, health, animal welfare, sports, environmental protection and the promotion of human rights, and makes comprehensive provisions for such charities. It is unlikely that anyone would suggest that English charity law would now apply in Guyana, but that itself is a strong reason for our own National Assembly to fill this yawning gap in our legislation.

One of the results of this failure is the perennial question that often confronts the person considering the establishment of a not-for-profit organisation – whether to go the route of the Companies Act 1991 or the Friendly Societies Act Cap 36:04 of the Laws of Guyana. For the benefit of all those persons called on to make the decision, this column compares in a simple straightforward way these two principal pieces of legislation for their suitability as the appropriate vehicle to carry out their business as NGOs. Another vehicle, the Co-operative Societies Act, is excluded, since only societies for the economic advancement of their members may be established under that act.

Friendly Societies Act

Companies Act 1991

1. Scope

Limited to the types of society specified, or extended by Minister

Generally unlimited

2. Regulator

Registrar of Friendly Societies

Registrar of Companies

3. Minimum Fees to Registrar

$1,000

Approximately $30,000

4. Role of Minister in establishment

May limit the application of the Act

None

5. Minimum number

Seven

One

6. Age limitation

Under 16 not allowed

Anyone can be a member but an incorporator must be at least 18

7. In case of refusal to register

Appeal to Minister

No provision

8. Legal Status

Body Corporate

Body corporate

9. Whether branches are permitted

Yes

Yes

10. Constitution

Must contain provisions relating to matters in Third Schedule of the Act

Must meet the requirements of the Companies Act but otherwise may contain any other provision

11. Audit

Must submit accounts to Registrar for audit or other person appointed to audit

Audit by person holding a practicing certificate from the Institutes of Chartered Accountants of Guyana

12. Reserve Fund

Mandatory

No requirement

13. Investment of surplus funds

Government or Post Office Savings Bank or Commonwealth Government or Land + Buildings

No restriction

14. Ability to Enter into Contracts

Yes

Yes

15. Loans

Must be out of separate funds established by contribution

Subject to rules set out in the Companies Act 1991

16. Taxation on Income

Automatic exemption under the Corporation Tax Act

Fully taxable unless expressly waived in a Tax Act or subsidiary legislation

An unsatisfactory winner

It would seem that there is a compelling case for organisations whose objectives fall within the Friendly Societies Act to register under that act rather than the Companies Act.

It is true that there have been far more complaints about the administration of the Friendly Societies Act compared with the Companies Act and that there is considerable scope for ministerial intervention under the Friendly Societies Act, but it is also true that there has been little evidence of any minister acting unreasonably under the act, rendering any fear baseless.

This however is not a reason for our legislature to continue to ignore the need for specific charities and related legislation that takes account of the increasing role and contribution of such organisations in the social sector in Guyana.

Such legislation ought to take account not only of the entity in its role as provider of charitable services and as a recipient of donations but also of the contributors – individuals and corporate – to such organisations.

For example, individuals who no doubt represent a significant element of total contributions can claim no deduction for any donations made for any charitable or public purpose.

On the other hand, companies are allowed to deduct donations under Deeds of Covenant and those made to the Government of Guyana for public purposes or to any prescribed organisation of a national or international character.

The retention of the status quo represents an insensitivity that is clearly undesirable and counterproductive.

Next week: The Private Sector Commission’s amazing position on the Value-Added Tax.