Hong Kong’s regulation of charities full of holes, city’s official auditor says

The Hong Kong government’s rules on charities are ridden with loopholes, the latest report by the city’s official auditor has found, with some groups allowed to maintain their tax-exempt status and free land even after conducting non-charitable activity, paying their directors and operating hotels and serviced apartments for commercial purposes.

“There is no overall statutory scheme for the registration and regulation of charities in Hong Kong,” the Audit Commission said. “There is a gap between public expectations of the [government’s] role in administering [charities] and what the Inland Revenue Department can do under the [existing laws].”

According to the report, the number of tax-exempt organisations grew 17.5 per cent to almost 9,000 between the 2012-13 financial year and September last year.

But the commission found tax authorities had been lacking in reviewing the charitable status of these groups, with 635 reviews yet to be finished as of September, among which 71 had been in process for over five years.

The Inland Revenue Department had also been slow to delist inactive charities, according to the report, with one organisation allowed to maintain its status even though it had never operated as a charity since it became one 12 years ago.

The commission also found four cases where the charities involved were allowed to keep tax-free status even after being found paying salaries to their directors, which breached regulations. The department did not require these directors to fully refund the organisations after the payments were discovered.