NonProfit Regulation

State Of Regulation of the Non-Profit Sector in SA: Cumbersome Framework Creates Blockages for NGOs,Tessa Brewis, NPO Law Programme Manager of the Non-Profit Consortium (NPC) argues that the unwieldy bureaucracy associated with the non-profit regulatory framework in South Africa creates practical challenges for cash-strapped organisations seeking to become more formal in line with donor requirements.

Earlier this week I phoned the NPO Directorate on behalf of a new CBO that we are assisting at the NPC Law Clinic, to find out how their NPO registration was progressing.  I was told that the department is only starting to look at applications received by the Directorate during December 2005 now and that they expect it would take at least a further two months before the NPO certificate would be issued. In terms of the NPO Act, this application is not supposed to take more than two months. It was obvious that our CBOs application was not going to be completed in less than five months!

In the meantime, the organisation was unable to meet a deadline for a funding application, since they needed an NPO number before a prospective donor would even consider them. As a new organisation they have little or no capacity to manage the various registration processes. They are not even considering applying for tax benefits yet as they will probably not be able to cope with all the reporting requirements. As far as this small CBO is concerned, one can hardly say that the legal and regulatory environment is enabling.

The question of what the laws that govern NGOs in South Africa should look like is not a new one. As a result of joint initiatives between civil society and government, major transformations to the legal and regulatory environment for non-profit organisations took place in the early 90’s. Important milestones included the repeal of the Fundraising Act, the promulgation of the Non-Profit Organisations Act, the creation of the Non-profit Organisations Directorate, the introduction of the concept of public benefit organisations (PBOs) and the setting of objective criteria for the granting of exemption from income tax in the Income Tax Act. At the same time, the creation of an enabling legislative environment for civil society was a clearly identified priority for government.

However 15 years later, non-profit organisations are still experiencing major practical difficulties with the law. But this time around, the attitude towards the regulatory framework and administration of the laws that affect NGOs appears to be one of indifference and negativity. This is illustrated by many recent developments.

Firstly, the NPO Act Impact Assessment Study that was completed by the Department of Social Development more than a year ago has not yet been publicly released. Secondly, the NPO Directorate and the Tax Exemption Unit at SARS have huge backlogs processing applications and in addition, still don’t have respective directors to head them up. Thirdly, there is uncertainty around the treatment of non-profit companies in the Company Law Review. Fourthly, while organisations are closing down due to funding shortages, vast undistributed reserves are held by the National Lottery Distribution Trust Fund. Finally, SARS is taking an overly cautious approach to extending greater benefits to donors, thus causing an obstacle to the promotion of philanthropy. Furthermore, it appears that there is little, if any, communication among the various regulatory authorities dealing with non-profits.

The various, delayed registration processes and lack of support are major impediments to NGOs.  Most CBOs are still not able to meet the complex requirements and choose instead to operate outside of the law; without receiving any of the legal or financial benefits provided for by the law.

If any change is going to be achieved, a strong petition from the non-profit sector is necessary to secure buy-in and willingness on the part of government departments to ensure the necessary reform.

As a first step NPC organised a roundtable of key sector stakeholders on 14 February in Johannesburg. Representatives from the NPC, Legal Resources Centre, Charities Aid Foundation of Southern Africa, South African NGO Coalition, South African Council of Churches, IDASA, South African Catholics Bishops Council, National Business Initiative, Cooperative for Research and Education, and INCL were clear that a collective effort from civil society is necessary to plan a strategy to target both parliamentary politicians as well as government officials in Pretoria in order to be successful.  It was decided that the NPC would act as the secretariat for a collaborative process to address these issues.

One of the most positive outcomes of the meeting was a commitment to facilitate a one-day conference. It was felt that a broader forum for discussion would create an opportunity for discussion amongst the various role-players, including the government regulators that deal with civil society. It was repeatedly emphasised that we should not focus on the various laws in isolation but that we needed to keep our eye on the big picture. The need for a comprehensive study and analysis of the entire regulatory system was highlighted, as this would enable civil society to put together a “declaration of what an ideal world for civil society would be.”

While these initiatives will take some time, we also need to be prepared for the opportunities to achieve reform in the more immediate future. The first three areas that need to receive priority are the NPO Act, the Company Law Review and the further amendments to the Income Tax Act. The participants at the roundtable formed task teams that will put together position papers, setting out necessary areas of reform. These papers will be used as tools for engaging with government stakeholders about achieving these changes during the forthcoming months. For example the Budget Tax Proposals hold some very positive promises for civil society, such as the commitment to streamline the dual registration processes, align the tax rates for non-profit organizations regardless of their form and further reform the lists of tax-exempt PBO activities. We need to be prepared to negotiate with SARS and National Treasury and ensure that these proposals are included in the legislation to the maximum benefit of civil society.
We as non-profit organisations appear to have become too accustomed to and accepting of the problems with the non-profit regulatory framework. We often hear organisations light-heartedly swapping stories about not having received a reply to their application for PBO status for more than 12months. While this might not threaten our immediate existence, it does mean that we are not able to access the tax benefits that we are entitled to.

We urge you to get involved in this process of reform: enter into discussions with any of the organisations that attended the roundtable; contact the NPC with research or case studies that you think will assist our engagement with government; make an effort to attend the one-day conference. Get involved in shaping a regulatory framework that really is enabling for civil society.

- Tessa Brewis is NPO Law Programme Manager of the Non Profit Consortium. Contact

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