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Tuesday, Feb. 22, 2011
NPO tax status threatened by Diet split
Bills to up exemptions, other perks face veto by opposition
With the opposition camp trying to veto all budget-related bills in the divided Diet, the fate of legislation proposed by the Democratic Party of Japan-led government to enhance the tax-exempt status of nonprofit organizations is hanging in the air.
Both the ruling and opposition camps agree the legislation is necessary to create a vibrant civil society, but many issues are at stake, and the prospects of the bills surviving the turmoil being generated by the opposition's control of the Upper House are unclear.
Following are some basic questions and answers on NPOs:
How is the term NPO defined in Japan?
NPO can refer to any group that serves the public interest and does not yield a profit for its members.
In a strict legal sense, NPOs are citizen groups given corporate status under the NPO Law enacted in 1998. The law was drawn up in the wake of the 1995 Great Hanshin Earthquake, based on the recognition that volunteer groups played vital roles in supporting survivors of the deadly quake and should receive proper legal status.
What incentive is there for a citizen group to obtain legal corporate status as an NPO?
According to the Japan NPO Center, having legal status can help in a variety of ways, such as when signing a contract, renting an office or opening a bank account to fund group activities.
Without corporate status, responsibility for an NPO's legal and financial problems concerning contracts and transactions would have to be placed solely on a representative of the group.
The representative who opened the bank account would also effectively hold all the assets of the group, posing access problems.
How many NPOs are in Japan and what kind of activities do they engage in?
As of the end of December, some 41,600 groups had attained NPO corporate status, according to the Cabinet Office website.
The NPO Law specifies 17 fields as NPO activities, including health and welfare, community building, social education, arts, culture and sports promotion, environment, disaster relief, human rights and peace-building, international cooperation, gender equality, consumer protection and job training.
What are the conditions required to organize an NPO?
Under the law, an NPO's goal must be to benefit the public, not seek profit. If a group's activities generate a profit, it should not be distributed to employees or members.
When an NPO is dissolved, all assets must be donated to the government. Each organization must have 10 or more "employees," including at least three board members and an auditor who serve as "executives" and have decision-making voting rights.
The number of executives being paid by the NPO must be less than a third of the entire number of executives.
NPOs are not allowed to participate in religious or political activities or support a specific candidate or political party. Underworld organizations or people affiliated with them are banned from forming NPOs.
If an NPO fails to submit a financial report for three consecutive years, its legal status can be revoked.
Are donations to NPOs tax-deductible?
Money donated to NPOs and various government-linked public-interest corporations can be tax-deductible, but the National Tax Authority recognizes only 200 out of 41,600 NPOs as tax-deductible organizations.
The authority has set very high requirements and the necessary paperwork is quite complicated, making it difficult for an NPO to apply for exemptions, the center's website says.
One requirement is that an NPO must demonstrate it has received at least one-fifth of its income through past donations.
How does Japanese public support for NPOs compare with other advanced countries?
Not very well, at least financially.
According to the nonprofit Japan Fundraising Association, donations account for only 0.22 percent of gross domestic product, while the corresponding figure is 1.87 percent in the United States and 0.87 percent in Britain.
Observers say people are reluctant to donate in Japan because of an apparent lack of incentives, particularly tax deductions.
What has the government proposed doing to increase dona tions?
In December, the government submitted bills that would ease conditions for citizen groups to become a tax-deductible NPOs.
The bills would also allow donors to deduct about half of the money donated to NPOs and other public organizations, regardless of their income level.
Richer donors are eligible for larger deductions. The new bills are designed to encourage donations from middle-income individuals.
Because the opposition camp has vowed to block all the budget- and tax-related bills proposed by the government in the Diet, what fate lies in store for the NPO-related bills?
Since the opposition controls the Upper House, it is expected to vote down all budget- and tax-related bills. Although the more powerful Lower House is in the hands of the ruling DPJ, it might not be able to override the Upper House to revive them, including the NPO-related bills.
But key members of the opposition parties, including Koichi Kato of the Liberal Democratic Party, head of a nonpartisan group on NPO-related issues, have said they are willing to separate the NPO-related bills from the budget bills during deliberations.
Lower House member Kiyomi Tsujimoto proposed on Feb. 15 that a new bill be drawn up and submitted to the Diet by nonpartisan lawmakers in order to save the NPO-related proposals from the ongoing power struggle.