Philanthropic assets can grow by half if Hong Kong relaxes taxation cap
Hong Kong’s relatively relaxed legal requirements for charitable organisations is one major draw to being the best city in the region to establish such structures
Hong Kong’s philanthropic assets can grow by about half if the city relaxes its tax deduction cap, which at 35 per cent is lower than the US and Singapore.
And if the tax incentives were put in place, Hong Kong’s assets could account for a higher percentage of its economy, to a level that matches or even exceeds that of the US, said Dr. Ruth Shapiro, founder and chief executive of Hong Kong-based Centre for Asian Philanthropy and Society.
That could translate to US$15.4 billion worth of assets, or 4.8 per cent of the city’s GDP, a percentage that the US holds based on the recent Global Philanthropy Report published by Harvard University and UBS. The country had the third highest percentage among 22 countries and territories surveyed.
Hong Kong’s US$10.6 billion worth of philanthropic assets from 2,000 institutions accounted for 3.3 per cent of its GDP, making it the highest percentage among Asian economies as the city is considered the best place to establish charitable structures in the region, according to the report. The city ranked fifth globally.
Even then, UBS Wealth Management’s head of philanthropy advisory for Asia-Pacific, Christina Tung said the asset value could be larger.
“The figure is seriously underestimated, as Hong Kong and other Asian people tend to be more private, and they don’t usually disclose how much assets they have in their foundations,” Tung said.
Philanthropic institutions may not structure themselves as companies limited by guarantees which need to disclose their asset worth to the public.
From what is known publicly, “the [Hong Kong] Jockey Club probably accounts for most of it,” said Shapiro.
According to its most recent annual report, the Jockey Club – Hong Kong’s sole betting operator – donated a record HK$4.1 billion (US$520 million) to charity funds in its 2016-2017 financial year.
Charitable donations in Hong Kong are tax deductible one dollar to one dollar, up to 35 per cent of any individual investible income, under section 88 of the Inland Revenue Ordinance. In Singapore, such donation deductions are one dollar to 2.5, and only apply to grants within the country. Hong Kong allows deductions for endowments going to other countries.
Shapiro said Hong Kong could increase financial incentives for donors by lifting the 35 per cent cap.
“People and companies in Asia are out ahead of government in terms of embracing philanthropy. Still, government policies, especially tax incentives for philanthropy, matter a great deal because they signal government endorsement of private giving,” she said.
Asia has been the fastest growing philanthropic region, which is recording the largest growth in wealth, Shapiro said. The number of new philanthropic foundations has spiked since 2010 in Asia-Pacific, against a slowdown in other regions, fuelled by the rapid accumulation of wealth by high net worth individuals in Asia, according to the Harvard and UBS report.
“Technology entrepreneurs and property tycoons led the surge in charitable donations,” Tung said.
Alibaba Group founder Jack Ma and co-founder Joe Tsai created a charitable trust focused on environment protection in 2014. The trust is funded by share options of about 2 per cent of Alibaba’s equity, valued at around US$3 billion at that time, before the company went public in September 2014.
Pony Ma Huateng, founder of Tencent Holdings, donated company shares worth of US$2 billion in 2016 to a new charity fund to support medical and educational causes in China.
“China’s tech entrepreneurs are following peers in the US [in charitable matters], such as Bill Gates and Mark Zuckerberg,” Tung said.
Chen Tianqiao, a 45-year-old online game company founder who became a billionaire at 30, gave US$115 million to the California Institute of Technology to establish a research institute in neuroscience in 2016.
Alibaba owns the South China Morning Post.