Hong Kong charities face stricter rules on tax and land perks after loophole revelations

Lawmakers question department heads about why organisations were given concessions at 14 sites where they made millions in profits

PUBLISHED : Saturday, 06 May, 2017, 8:56pm
UPDATED : Saturday, 06 May, 2017, 11:29pm

Nine government departments overseeing the city’s charities have promised to tighten their supervision after an audit report revealed gaping loopholes in the handling of their free land and tax-exempt status.

The findings, released on April 26, showed that tax authorities and land departments had been lax in reviewing the charitable status of these groups, allowing them tax exemption for years or letting them use concessionary sites to operate hotels, restaurants or serviced apartments.

The number of tax-exempt organisations grew 17.5 per cent to almost 9,000 between 2012 and September last year. The total amount of tax deductions for donations made to these tax-exempt charities totalled HK$11.84 billion in the 2014-15 financial year.

Scrutinising the report on Saturday, a Legislative Council panel grilled officials from nine departments for their laxity in regulating charities.

In particular, lawmakers questioned why departments had given 14 land sites to charity groups at concessionary premiums that were now being used to operate commercial or non-charitable activities, making them profits running into millions over the years.

Director of Lands Bernadette Linn Hon-ho said the land use in seven of the 14 sites had not violated any terms as these could have been too broad.

“Since the department signed the contracts with different charities in different years, the terms under the leases were different due to the policies and social environment at that time,” she said.

There are so many things that the officials were unable to explain in this meeting
Tanya Chan, lawmaker

Three of the 14 sites had no restrictions on land usage, while others stipulated the usage as hostel without setting further conditions.

“According to the legal advice, we understand the term ‘hostel’ is stipulated in the lease without a further interpretation, there is no clear legal definition to define the difference between hostels or hotels,” Linn said.

But the department agreed to review the other seven cases cited by the report and would look at the possibility of introducing new terms when granting land to charity groups.

In reply to claims that the Land Revenue Department had been slow to delist inactive charities, Commissioner of Inland Revenue Wong Kuen-fai said the number of officers responsible for reviewing the applications had doubled to eight since 2013.

According to the report, one organisation was allowed to maintain its charity status to enjoy tax-exemption even though it had never operated as a charity since it became one 12 years ago. As of September, 635 reviews had yet to be completed – 71 of which had taken five years.

Lawmakers also criticised the irregular action taken by the department after detecting violations. In four cases, charities were found to have violated the regulation by paying their directors, after which they each paid a refund to the government as remedial action, ranging from 5 per cent of the HK$276,100 paid in one case and 50 per cent of HK$375,000 paid in another. Their tax exemption status was not then affected.

Wong explained the refunds were made out of the good will of these charities as there was no specific penalty.

Secretary for Financial Services and the Treasury Professor Chan Ka-keung said officers had been reminded to stay alert when reviewing applications by charities for tax exemption.

Tanya Chan of the Civic Party said: “There are so many things that the officials were unable to explain in this meeting, always saying that they were not clear about the details. This is very disappointing.”

The public hearing resumes on May 16.