One of the problematic issues that has arisen in the local jurisdictions we at ICCSL are studying with respect to the impact of the new direct registration regulations in China has been an imprecise understanding of ‘charity’. Direct registration allows four different types of organization to register directly with the Ministry of Civil Affairs (MCA) without having a ‘sponsor’ agency; one of these is charity or cishan organizations. In the absence of a national charity law, local officials are reportedly struggling to find a good definition of the term.
One problem is that current national law contains no such definition. Although the Public Welfare Donation Law defines ‘public welfare’ or gongyi, the term cishan is nowhere defined. One can, of course, infer that it means something narrower than gongyi, but precisely what seems for now to have been left entirely up to public officials working in provinces and self-governing municipalities. While this is also true of some other terms in the local direct registration regulations (eg ‘political’), it is nonetheless troublesome. And local officials and leaders of organizations in a variety of places have complained about the lack of clarity.
One senses that ‘charity’ should mean something that is not as broad as ‘public welfare’ or ‘public benefit’. Indeed the China Philanthropy Research Institute’s (CPRI) draft ‘Charity Law’ does provide such a narrower definition. It contemplates that charity means relief of poverty and succour for the underprivileged. Thus ‘charity’ does not include some of the broader ‘public benefit’ purposes, such as environmental protection, animal welfare, culture, etc. This is consistent with historical practice in the common law, where traditional definitions of charity were also so limited under the three principal ‘heads’ of charity found in the so-called ‘Pemsel’ definition (from the case Commissioners for Special Purposes of Income Tax v Pemsel). It is also consistent with other international practice.
In Hungary, for example, one finds a notion of ‘especially charitable purposes’, which receive greater tax benefits than others. In India, one finds a similar practice, confining the greatest tax benefits to a narrower group of organizations. Thus, in China, where tax benefits are linked to ‘charitable status’, one can contemplate that such a distinction would seem to be appropriate. At present a differentiation in tax benefits between gongyi and cishan organizations is not proposed, but it might be in the future.
One reason to make such a differentiation between (higher) tax benefits for donations to ‘poor’ charities and similarly targeted ones is that such a rule tends to disfavour the charitable organizations favoured by the wealthy, such as elite educational and cultural organizations. This is especially arguable in countries that have the ‘upside down’ subsidy for charitable donations found in a progressive tax rate structure. While it may not be so easy to quantify such benefits with a tax credit system (as in Singapore) for charitable contributions, there is a substantial bias for institutions favoured by the rich. But the availability of credits is limited worldwide.
When one looks beneath the surface, however, making a distinction between ‘poor’ and other charities may not seem to be such a good idea. Analysing carefully elite institutions such as Oxford University or the Metropolitan Museum of Art (the Met), one can see a lot of spillover cross-subsidy effects from permitting a high tax deduction for the wealthy who contribute to them. Oxford grants scholarships so that students who do not have the means to attend may do so, and on any given school day, visitors to the Met are confronted with hoards of schoolchildren all over the museum from poorer neighbourhoods in New York and surrounding areas.
Thus, when one probes more deeply, the surface appeal of tax policies creating a bias on behalf of traditional poor charities seem to dissipate. In conclusion, then, a suggestion for China is that this subject needs more study than at first seems warranted. Research should be conducted not only on sociological tendencies with respect to giving by the wealthy but also on their economic value to the larger society.
Karla W Simon (西 门 雅) is chairperson of ICCSL.