China Passes New Charity Law:
What’s
Changed
?
On March 16, 2016, the Standing Committee of the National People’s Congress of the PRC promulgated the nation’s first real charity law.
The Charity Law
will compliment and build on the
Law on Donations for the Public Welfare
(LDPW) which was issued on June 28, 1999. The LDPW was intended to address the social issues of charity and regulate charitable donations. However, the scope of the law is limited, and it did not effectively address the matter of establishing or regulating the practices of an organization for the intended purpose of accepting charitable donations or to carry out charitable work.
The new Charity law officially comes into effect on September 01, 2016, and will go a long way to remedy the short comings of LDPW. The LDPW itself will continue in effect.
Though intentions were good, the LDPW on its own is a flawed law with many provisions which are not readily enforceable in practice. For example Article 21 of the former LDPW stated, “The Donor shall have the right to inquire of the
Donee
about the use and control of the donated property” and followed up by stating that, “The
Donee
shall give truthful answers to the Donor’s inquiries.”
This article proved problematic because the law offers no specific requirements or form for the
Doner
to follow when requesting information pursuant to the article, or for the
Donee
to follow when providing a reply. Furthermore, the law provides no legal consequences where a
Donee
may fail to respond to an inquiry, or responded with false information. The only available remedy in such a case would likely be litigation, which for most charitable donations, which are relatively limited in value, would be impractical.
Further, Article 22 of the LDPW states, “The
Donee
shall be subject to public supervision, making public the donations received, and the use and control of the donated property.”
In theory, this arrangement sounds just; an individual or organization accepting donations would be supervised by the public. However, what part of the public, as a practical matter has the will or the responsibility to perform such oversight? What is the mechanism by which the public would exercise its supervision? Is the public generally expected to organize and hire professional lawyers and accountants to review a charity’s work? In what manner, and how frequently, and with what reasonable restrictions is the individual or organization receiving donations required to make this information public? What are the legal consequences for withholding information, or presenting false information to the public? All of these issues were left unaddressed by the LDPW.
Pursuant to Article 20 of the LDPW, an individual or organization accepting donations,for the public welfare is required to file an annual report as to the use and control of the donated properties with the relevant government agency, the Civil Affairs Department (CAD). However, the records filed with CAD were not available to the general public. This created a system in which the public supervision granted by the law was impossible to effectively implement.
In addition to clarifying regulations and procedures for the establishment of a charity organization, the new Charity Law makes real efforts to improve transparency of charitable organization operations and the use of donated funds. There is a complete chapter of the Charity Law outlining the publication of required information regarding the use of donations. Such additional provisions include:
1.
The charity organization is obligated to make its annual report available to the general public;
2.
When raising funds for charity, a charity organization is obligated to update the publicly available information on the fund raising status every three months. Further, the charity is required to make public the results of a fund raising event within three months after the end of the event.
3.
When conducting a charitable program or action with donated funds, the charity organization is required to update the publically available information on the program every three months, and is required to make public the use of the donated funds within three months of completion of the charity program in which
such funds are used.
In an important change, the new Charity Law goes on to provide specific legal consequences for failure to make required disclosures. Article 99 of the law authorizes the Civil Affairs Department to stop operations of a charity organization when certain conditions have been met. Failure to publish information as required by the law is one action which will justify the Civil Affairs Department in taking shutting down a charity organization’s operations.
The Charity law also specifically outlines the responsibilities and authority of each level of the Civil Affairs Department. These distinctions were missing from the former LDPW. Outlining these responsibilities at national, provincial, and municipal levels is expected to increase accountability at all levels, and will clarify when action is required at a given level, so as to ensure the,provisions of the law are appropriately implemented.
The Charity Law
is an important step toward increasing the practical implementation of a workable Charity policy in Chinese society. The law makes progress in specifying detailed rights, duties and liabilities of parties receiving charitable donations, as well as the government agency which oversees Charity organizations. In the midst of a Chinese public which had long been suspicious of charities and charitable giving, the new law is expected to increase the transparency of these organizations, and increase government oversight. It is hoped that the changes made by this new law will lead to increase public willingness to give to charitable organizations. It is also hoped that the increase in transparency will inspire additional competition among charity organizations to prove they provide effective charity services with donor’s money. In time, this may lead to a disruption of the charity monopoly currently held by the government controlled Red Cross of China.
Even with these many improvements, there is one important area in which the new Charity Law falls short just as the old LDPW did. Both the LDPW and the Charity Law indicate that individuals, legal entities, and other organizations which make a qualifying donation will be granted a tax preference. However, to date there are no relevant tax policies which would implement such a preferential tax treatment or any tax reduction in return for a charitable donation.
The goal of a Charity Law is to promote the sharing of wealth and goodwill among all levels of society. It therefore seems that effective implementation of these promised preferential taxation policies would be an important way to promote charity, and encourage the public to make charitable donations which will put these funds to use to benefit the whole of society.