Non-Profit Organisations Amendment Bill; Fiscal Issues Affecting Non-Profit Organisations

Meeting report

SOCIAL SERVICES SELECT COMMITTEE
12 April 2000
NON-PROFIT ORGANISATIONS AMENDMENT BILL; FISCAL ISSUES AFFECTING NON-PROFIT ORGANISATIONS

Documents handed out:
Nonprofit Organisations Amendment Bill [B 9 - 2000]
Proposed Amendments to Nonprofit Organisation Amendment Bill (Appendix 1)
Department of Finance's comments on Katz Commission's Ninth Report: Fiscal Issues Affecting Non-Profit Organisations

Chairperson: Ms L Jacobus

SUMMARY
The Nonprofit Organisations Amendment Bill deletes section 6(2) of the Act requiring publication of model documents in the Government Gazette and newspapers for comment. The publication requirement is felt to be expensive considering that often no comments are received or when received such comments are insubstantial and do not warrant the expense. The Department emphasised that regulations and amendments thereof will still be published for comment. The Committee will vote on the Bill probably on 19 April 2000.

The Department of Finance commented on the Katz Commission's Ninth Report regarding fiscal issues affecting non-profit organisations. The Department said there is a misconception that it is hawkish when it comes to giving tax privileges to NGOs. Emphasis was put on the direct interest the Department and SARS has on fiscal issues affecting non-profit organisations. Proper mechanisms to monitor, analyse and evaluate records of NPOs in order to effect compliance with the objects for which they were initially established. A more detailed definition of public benefit organisations is required with a review of the categories of social activities eligible for favourable tax deductibility.

MINUTES
Nonprofit Organisations Amendment Bill
The Department of Welfare was represented by Mr Pierre du Preez, Legal Advisor, and Ms Gail Smith, Deputy Director: Nonprofit Organisation Directorate.

Mr Du Preez stated that the Bill envisages no longer requiring the publishing of model documents in the Government Gazette and widely circulated newspapers. Regulations will still have to be published and the one month notice for comments be given. However, when it comes to model documents, their amendment and substitution, it has been the experience of the Department that they are time consuming and expensive (at a cost of about R20 000 to advertise) since no comments are received and when received the comments do not warrant the cost.

The Bill also effects technical corrections to errors of text in the Act.

Questions
The Chairperson noted that all the clauses with the exception of clause 1, deal with technical errors and are straightforward. Publication of model documents and request for comments is to be withdrawn for financial considerations. She asked whether the Department had considered if there are any constitutional implications to deleting section 6(2) of the principal Act.

Ms Smith of the Department of Welfare pointed out that the Department does go another route of actively seeking comment from stakeholders such as the NGO Coalition. Since these are guidelines and model documents they are not cast in stone; they are reviewed from time to time, and it is thought that they do not warrant the cost. She emphasized that regulations will still be published and opportunity to comment on them afforded.

Mr J Horne (NNP - Northern Cape) wanted to know if advertising in the Afrikaans newspapers as well had been considered by the Department.

Mr Du Preez said in the past the Department has used Rapport and the Sunday Times, but it had had no response from Afrikaans organisations.

Mr BJ Mkhaliphi (ANC - Mpumalanga) asked how the Department ensures that they are not leaving out newly established and relatively unknown organisations since they invite comments only from those organisations they know of.

Mr Du Preez said by going the NGO coalition route they do try to get submissions from newly formed and not well established organisations. These organisations are often invited to focus group discussions. He also emphasised that the Department is addressing this concern. The important point to remember is that regulations and amendments thereof will still be published for comment.

Fiscal Issues Affecting Non-Profit Organisations
Mr Martin Grote, Chief Director: Tax policy, Department of Finance, commented on fiscal issues affecting Non-Profit Organisations and the Ninth Interim Report of the Commission of Inquiry into Certain Aspects of the Tax Structure of South Africa (see document).

Questions
Q.) Under the heading "Tax relief extended", no mention is made of extending deductibility of donations in favour of organisations benefiting people with disabilities. Is this a deliberate omission?

In extending provisions relating to deductibility of donations to the categories of public benefit organisations mentioned, the Department was not properly informed which resulted in this omission. There is a need to go back to the Minister of Finance with the proposal to include people with disabilities.

Q.) Reverend P Moatshe (ANC - North-West) wanted to know how investing in the Stock Exchange tallies with budgeting of the NGOs because such monies are meant for projects.

Mr Grote said that the Department had picked up on numerous occasions that NGOs were not well advised in making investments. Some had gone to dubious investment schemes which had no sound commercial basis resulting in a loss of funds. The Department wanted to create certainty with guidelines that will minimise risk in this regard.

Q.) Mr Mkhaliphi said the SARS had announced that it had improved its effectiveness through computerisation but Mr Grote complains that they are not effective because of lack of personnel. Could Mr Grote clarify that?

Mr Grote said it is true that SARS has made incredible progress on effectiveness but the key focus areas had been VAT, personal income tax, corporation tax. It is difficult for SARS to monitor the financial activity of over 45 000 NGOs with only two officers responsible for doing so. SARS needs to train people to specialise in this area; one setback is that it competes with private accounting firms to recruit from a small pool of highly skilled personnel.

Q.) Ms E Lubidla (ANC - Northern Cape) wanted to know what criteria the Department uses to fund NGOs.

Mr Grote said the Department does not fund NGOs but grants tax privileges to them. Regarding the criteria for granting of such privileges the Department is engaged in looking at the definition of which organisations are for public benefit. This is expected to be finalised by mid May 2000. There are mechanisms to look at the founding documents of an NGO to assess if their stated objectives are accomplished, but there are criticisms to that.

Mr Grote rounded off by saying that the Committee should take note of the following issues in the Department of Finance's comments:
- the review of section 10 of the Income Tax Act;
- the definition of public benefit organisations;
- how public benefit organisations should expend their funds;
- what happens to remaining assets on dissolution of a public benefit organisation;
- which Department should be required to sign off on the list of NPOs eligible for more generous tax deductibility, on the basis of their stated objects and seeing to it that they realise it;
- section 18A of the Income Tax Act where, for instance, it looks at whether private schools should benefit;
- who should prioritise which public benefit organisations get onto the list of particular categories of social activity eligible for more generous tax deductibility.

The meeting was adjourned.

Appendix 1:
Clause 1 - Amendment of section 6 of Act 71 of 1997
This clause provides amendment of section 6 of the Nonprofit Organisations Act , 1997 by deletion of subsection (2) which required the publishing of the model documents for comment.

Clause 2 - Amendment of section 9 of Act 71 of 1997
1. Corrects textual errors in section 9.
2. The clause also deals with discrepancy in numbering of texts. The Afrikaans text contains 6 subsections under section 9 while the English text contains five; the Afrikaans text is brought in line with English text.
3. The Clause also corrects an error in section 9(3). The Minister calls for nominations then appoints. [nominate] is replace by appoint.

Clause 3 - Amendment of section 24 of Act 71 of 1997
Corrects an error of text in section 24 of the principal Act by substitution in subsection (2) for paragraph (c) of :
"(c) all nonprofit organisations which deregistered voluntarily, have been wound up or dissolved during the previous financial year.".

Clause 4 - Amendment of section 25 of Act 71 of 1997
Corrects a textual error through amendment of section 25 by substitution in subsection (1) for paragraph (a) of:
"(a) the constitution of a nonprofit organisation whose registration has been cancelled, or that has voluntarily deregistered, has been wound up or dissolved; and".

Clause 5 - Amendment of section 34 of Act 71 of 1997
Corrects the textual error through amendment of section 7 by replacing subsection (2)(c) the following words (in bold) preceding subparagraph (i) with underlined words:
"[If the authorisation or registration of an] An organisation contemplated in paragraph (a) [would expire] must apply to be registered in terms of this Act¾ ".