Why Hong Kong needs a one-stop shop for charities
Nearly four years ago, the Law Reform Commission's charities sub-committee, which I chair, started a review of the way Hong Kong regulates charitable bodies and their fund-raising activities. Yesterday, we announced 20 recommendations that we believe could create a more effective and up-to-date system. There will now be a three-month public consultation.
Hong Kong is a charitable place, with donations reaching HK$8 billion in 2007. However, there is no comprehensive oversight of charities. The Inland Revenue Department grants tax exemption to charitable bodies, but no one actively monitors the groups to ensure they are using funds appropriately. Indeed, we do not even have a proper definition of what a charity is.
Most charitable bodies undoubtedly do good work. But there have been several alleged scams over the years, and these damage the reputations of all charities.
The aim of our sub-committee is not to regulate the work of charities; it is essential that they remain free and independent. However, we do want to bolster the public's confidence in charities. That, in turn, should help attract donations for good causes and encourage charitable activities.
We studied how other jurisdictions go about this, and we were especially impressed with the way charities are overseen in Britain. Since there is no point reinventing the wheel, we drew on the British approach for some key principles.
Our core recommendation, beyond having a statutory definition of what constitutes a charitable purpose, is that Hong Kong establish a charities commission to register charitable bodies and monitor fund-raising methods and corporate governance. All groups that make charitable appeals to the public or want tax-exempt status would need to register. (Purely private foundations would remain outside this system.)
Registered charities would need to file an annual report outlining such details as directors' names and financial statements, and they would need to keep proper accounting records. Bigger charities would need to have reports audited. The charities commission would be able to investigate alleged mismanagement, and would have the power to deregister charities, refer cases to law enforcement agencies and even remove or appoint directors of charities if necessary.
Obviously, we do not want such rules to be a burden. Our hope is that, by adopting basic standards of transparency, charities will benefit as they win public trust.
We are also recommending that charities and individuals have the right to appeal in court against decisions by the charities commission.
Where fund-raising is concerned, we are proposing that the commission provides a 'one-stop shop' for charities to apply for the various permits and licences. At the moment, charities have to go through the Social Welfare Department, the Food and Environmental Hygiene Department and the Television and Entertainment Licensing Authority for authorisation for different fund-raising activities.
We are not recommending any change to the existing treatment of charities for tax purposes. The Inland Revenue Department would grant tax-exempt status to charities once they had successfully registered with the proposed commission.
In essence, we are recommending a commission that will vet and register charities, monitor charities' compliance with legal obligations, approve fund-raising activities, promote good governance and investigate misconduct, taking action where necessary.
The full recommendations can be seen at the Law Reform Commission website. We would like feedback.
Charities perform all sorts of useful functions - from poverty relief to health promotion and education - and the whole community will benefit if we get the regulation right.
Bernard Chan is a former member of the executive and legislative councils