By Wan Saiful Wan. Published in the Star Online 25 October 2016


THE potential of the non-profit sector is not always recognised. Most of the time, when the term non-profit is mentioned, what comes to mind are cheaply operated charities doing not very sexy work.

Many are unaware of the potential of the third sector to provide public services. The third sector is frequently under-appreciated and misunderstood.

In reality, non-profit organisations can play important roles in the delivery of public services. Some of the existing ones are superior to both the private and public sectors.

Globally many schools, universities and hospitals are non-profit non-government entities. Harvard University and Eton College are examples of the more popular educational institutions. In many countries around the world, the concept of social entrepreneurship is also gaining ground.

In Malaysia, we have some good examples too. In central Kuala Lumpur, there is the Tung Shin Hospital that was founded in 1881 by Kapitan Yap Kwan Seng.

The story of Yap Kwan Seng is a fascinating one. He migrated to Malaya in 1846 and started off working in a tin mine. He gradually built his wealth and political clout, earning the trust of the people around him, which eventually enabled him to rise up to be a Kapitan Cina.

He donated his wealth to various charitable causes, and it was this generosity that led to the establishment of the Tung Shin Hospital. Until today, Tung Shin remains a hospital whose objective is to provide free medical treatment to the poor and to assist their destitute in-patients.

In the recent Budget 2017 speech, Prime Minister Datuk Seri Najib Tun Razak announced that almost RM25bil is allocated for healthcare purposes. Of this, a tiny fraction of RM20mil is allocated for loans to charitable organisations running non-pro­fit hospitals, to help them buy hospital equipment.

This is just a tiny amount relative to the overall budget. But, to me, the Government’s acknowledgement that charities can run hospitals is the more important issue. This is one more step in the right direction.

Now that the recognition has been given, I hope there will be more partnerships between the Government and the non-profit sector to provide healthcare as well as other services.

But if the Government is serious about getting more non-profit organisations to deliver public services, providing funds or contracts is not the first step that needs to be taken.

The prerequisite is to create an environment that is conducive for non-profit organisations to grow and flourish. That means looking at our regulatory environment first and foremost.

Malaysia’s regulations for non-profit orga­­­n­i­sations are, forgive my language here, ridiculous verging on stupid.

Registering a charity is, to say the least, cumbersome. It is not clear which ministry or agency looks after the registration. In fact, it is not even clear what legal entity you need to register as.

For example, just take any charity that you know out there. At first glance, do you know whether they are a trust, a company limited by guarantee, or a society? Do you even know the difference between these legal structures?

If you don’t, then welcome to the first hurdle in registering a non-profit entity in Malaysia. You need to decide what legal structure you want to be, and making that decision alone is enough to stop you from setting one up. You will also need to deal with multiple agencies or ministries, in addition to answering the multiple queries that will come one question at a time.

Then comes the issue of fundraising. You would expect that if you raise donations for your charity, those donations would be tax-exempt.

You are wrong. Being a registered charity in Malaysia does not necessarily mean you are tax-exempt. For that, you need to deal with the Inland Revenue Department, and this process is completely separate from the registration.

If Inland Revenue feels that you don’t deserve to be tax-exempt, you will have to pay corporate tax for any surplus that you make. That means, in simplified terms, if your donors give you RM1,000 for a project but you spend only RM500, Inland Revenue will punish your fundraising success, or your success to cut costs, by forcing you to pay corporate tax on the RM500 surplus.

Budget 2017 saw a good step taken by the Government to recognise the potential held by the non-profit sector to deliver public services. As I said earlier, the amount allocated is tiny but the important thing here is not the amount but the recognition.

We must create an environment that encourages the non-profit sector to assist the Government in public service delivery. Non-profit sector can do much more, and at lower costs too. For this to happen, we need to change our regulations so that it is friendly to the third sector.

I urge the Government to consider the establishment of a Charities Commission. This will require a detailed study and the Government can start by setting up a working group to research this idea.

Only if we have a full fledged Charities Commission will the potentials of the third sector be fully realised.


*Wan Saiful Wan Jan is Chief Executive of the Institute for Democracy and Economic Affairs

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