Three problems with Hong Kong charities law and how to solve them

PUBLISHED : Monday, 03 September, 2018, 5:33am
UPDATED : Monday, 03 September, 2018, 5:32am

Much has recently been written on the public loss of confidence in the non-profit sector in Hong Kong and the government’s belated and ineffective response of issuing non-binding guidelines for charitable institutions, and requiring charities with fundraising permits to disclose their financial statements.

Given the social and economic importance of charitable institutions in Hong Kong, it is curious that we have yet to develop a truly home-grown charities law and regulation. This is a serious lacuna because so many of our city’s most prominent institutions, including schools, hospitals, churches, temples and so forth are charities at law.

The fundamental problem is that we do not have a charities ordinance. Our law governing charities is instead almost wholly grounded in common law – mainly English case law authorities from the late 19th and early 20th centuries. In order to be a charity, an institution must be established exclusively for one or more of the following objects: the relief of poverty, the advancement of education, the advancement of religion, and the public benefit of Hong Kong.

Those four objects have remained essentially unchanged at common law since the 16th century. Charities law in Hong Kong is consequently often anachronistic and unresponsive to the specific social and cultural context of the city.

Not having a charities statute also complicates the administration of charities by creating uncertainty for the trustees or directors who, quite understandably, would prefer that the institutions they manage remain above suspicion. The enactment of a charities statute should therefore be a matter of legislative priority.

Flowing from the first problem is the practical issue that we have no true charities regulator. Unlike the UK, with its Charities Commission, we do not have a dedicated government body supervising the non-profit sector. That function has historically been allocated to the Inland Revenue Department, whose role is limited to reviewing the constitutional documents of a charity to decide whether it should be recognised as a tax-exempt body, and performing periodic and random spot checks. It is incapable of systematically identifying and censuring the worst cases of malpractice, such as aggressive fundraising, poor accounting practices, and the co-optation of charities for private gain.

A charities regulator staffed by civil servants trained in charities law should operate both as a watchdog and a tribunal of first instance for any disputes relating to charities. It should also maintain a public register of documents relating to charities including, at a minimum, annual audited financial statements for each charity. After years of budget surpluses, the government certainly has sufficient financial resources to establish such a body.

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The third problem is a lack of public awareness and education. Thousands of Hongkongers dedicate their time and energy to raising funds and volunteering for charities. It would be a credit to their efforts if there were a better understanding both in educational and in public information contexts about charities and their purposes.

Because a minority of charitable institutions have been poorly run, or established for reasons of private profit, there has been a decline in the public perception of charities. That is unfortunate because many Hongkongers owe their health, education or spiritual satisfaction to charitable institutions.

Stefano Mariani, tax lawyer, Hong Kong