By Chulhee Kang. 

The regulation of fundraising has been a long-standing and evolving issue for Korean nonprofit organizations (NPOs). From 1949 to 1995, the government prohibited most fundraising campaigns to protect citizens’ property rights – permitting them only for special causes, such as national defense or a domestic or international disaster. Although these restrictions were relaxed in 1995, the government still required transparency reports on solicitations and lowered allowable administrative expenses from 5% of the amounts raised to 2%.

From 2006 to the present, additional modifications have been in force:

  • On an annual basis, qualified NPOs must register with the government in order to fundraise.
  • They must stop their campaigns once their objectives have been accomplished.
  • They must submit solicitation completion reports within 30 days of the campaign ending

Over this period, fortunately, the government increased the cap on administrative expenses from 2% to 15% as a new measure to encourage a culture of giving in Korea. Despite these sequential relaxations, issues remain. There is no central administrative organization for nonprofit organizations in Korea, such as the Canada Revenue Agency, the Internal Revenue Service in the US, or the Australian Charities and Not-for-profits Commission. As it stands, Korean NPOs must submit different reports to different governmental organizations – the National Tax Service, local governments, and the government organizations for which each NPO registered.

Moreover, the government has recently proposed revising the Registration of Solicitation Act to strengthen its monitoring and supervision quality of solicitations and donors’ rights – triggering a debate on the government’s role and effectiveness in such matters. The National Tax Service estimates that about US$13 billion was raised in Korea in 2018. Of this amount, only 4.3% has been monitored by the government under the Act. Such limited coverage makes it ridiculous to strengthen the existing system in the government’s proposal. The proposed modifications also include the requirement that NPOs provide donors with the whole accounting records demonstrating how their donations were used upon each donor’s request. Failure to comply could result in fines or imprisonment.

A more constructive way forward would involve establishing a single, centralized governmental system to monitor and regulate NPOs and promote their transparency – akin to the CRA or IRS. Unnecessary and ineffectual modifications can only increase the administrative loads and transaction costs of NPOs. A more helpful step would be to remove the 15% cap on administrative expenses relative to the funds raised – something particularly onerous for small organizations raising small amounts – and allow NPOs to make autonomous but transparent decisions about overhead.

Chulhee Kang is a professor and former dean of the School of Social Welfare, Yonsei University, in Seoul, South Korea. (Photo of Seoul, South Korea, is courtesy of Yeoul Shin and Unsplash.)

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Wednesday, May 19, 2021 in
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