Financing of Charities (UA0032)

Developing and submitting to the Cabinet of Ministers of Ukraine in due course the draft laws on amending the Law of Ukraine on Charitable Activities and Charities and the Budget Code of Ukraine in order to allow charitable organisations to receive financial support for performing state policy tasks and providing social services

2. Financing of charities

Commitment Text: 2. Developing and submitting to the Cabinet of Ministers of Ukraine in due course of the draft laws on amending the Law of Ukraine on Charitable Activities and Charities and the Budget Code of Ukraine in order to allow charitable organisations to receive financial support for performing state policy tasks and providing social services.

Expected result: relevant draft law endorsed by the Cabinet of Ministers of Ukraine, submitted to the Verkhovna Rada of Ukraine, and followed up until adoption.

Start Date: Not specified End Date: 31 March 2015

3. Obtaining not-for-profit status for CSOs

Commitment Text: 3. Regulating the issue of granting civic associations the non-profit organisation status by means of entering a civic association in the Register of Non-profit Institutions and Organisations on the “one-stop shop” basis, with regulating document processing deadlines, defining grounds for denial of such a status, and envisaging free on-line access to the Register, in particular through the development and submission to the Cabinet of Ministers of Ukraine in due course of a draft Law of Ukraine on Amending the Law of Ukraine on Civic Associations and the Law on State Registration of Legal Entities and Individual Entrepreneurs, and other legislative acts as required.

Expected result: relevant draft laws endorsed by the Cabinet of Ministers of Ukraine, submitted to the Verkhovna Rada of Ukraine, and followed up until adoption.

Editorial Note: The IRM researcher grouped these two commitments together since they are both concerned with creating an enabling environment for civil society organisations.

Responsible institution(s): Ministry of Finance (commitment 2), State Registration Service (commitment 3)

Supporting institution(s): Ministry of Social Policy, Ministry of Culture, Ministry of Justice, NGO Ukrainian Independent Centre for Political Research, unspecified NGOs and international organisations (commitment 2); Ministry of Justice, Ministry of Finance, State Fiscal Service, NGO

"Ukrainian Independent Centre for Political Research", United Nations Development Programme (UNDP), non-specified NGOs and international organisations (commitment 3).

Start Date: Not specified End Date: 30 April 2015

Commitment aim

Both commitments were designed to create an enabling environment for civil society organisations. Commitment 2 focused on improving legislation to provide additional financial support to charities in Ukraine. Commitment 3 aimed to simplify the procedure for granting CSOs non-profit status. If implemented, this would be a step forward in improving conditions for the operation of charities and other non-profit organisations in Ukraine, as they would alleviate some of the administrative barriers faced by CSOs.

Status

2. Financing of charities

Midterm: Not started

After adoption of the OGP action plan, the Ministry of Finance objected to this measure and refused to implement it. The ministry was concerned that the measure, if implemented, would require additional budgetary allocations. In June 2015, the vice prime minister who chairs the OGP Coordination Council issued a formal instruction to the ministry to hold negotiations with civil society representatives, but the ministry did not do so. The issue remained unresolved, hence, the measure’s implementation had not yet started.^{[Note 6: Independent Reporting Mechanism (IRM) Progress Report 2014-15: Ukraine, 29.]}

End of term: Not started

Since the midterm report, implementation of the commitment has still not begun. The Ministry of Finance continued to object to the commitment. According to the Government’s final self-assessment report, the ministry stated that Ukrainian law already extends sufficient support to charities in Ukraine. In particular, they can compete to obtain social services provision and public procurement contracts, and they enjoy certain tax exemptions (charity assistance and property transferred as international aid are exempt from the VAT; charities do not pay income tax).

3. Obtaining not-for-profit status for CSOs

Midterm: Not started

The procedure for obtaining non-profit tax status by NGOs and other civic associations was cumbersome and time-consuming. An NGO first had to register as a legal entity with the Ministry of Justice, then apply to the Fiscal Service for non-profit status. The Fiscal Service often rejected such applications due to problems with NGO statutory documents. These had to go back to the Ministry of Justice for amendment. The commitment aimed to streamline procedures and introduce a one-stop shop principle for obtaining the relevant status. That is, applicant NGOs would apply to the Ministry of Justice, which would then arrange registration with the tax authorities. In its midterm self-assessment report, the government informed about a draft law adopted in the first reading in July 2015, but failed to address the issue that the OGP measure targeted. It did not provide for the one-stop procedure for civic organisations to obtain their registration as legal entities or eligibility for non-profit tax status.^{[Note 7: Ibid, 29.]}

End of term: Complete

The final wording of the new law on state registration of legal entities, private entrepreneurs, and civic formations, as adopted in November 2015 (enacted in December 2015), included provisions on the one-stop procedure for obtaining non-profit status by CSOs. An applicant entity was allowed to submit, at the same time, a request for registration as a legal entity and non-profit organisation. Later, in July 2016, the government approved regulations on the Procedure for maintaining a Register of Non-Profit Organisations to reflect the new changes in the law. According to the government’s self-assessment report, NGOs took part in the development of the final version of the law and government regulations. However, a CSO representative noted that the new provisions had not been implemented. State registrars refused to transfer applications to tax authorities, referring to the lack of electronic data exchange.^{[Note 8: Written interview with Maksym Latsyba, NGO Ukrainian Centre for Independent Political Research.]} This indicates that the one-stop procedure is not yet fully functioning. However, as the commitment sought only to adopt new changes in the law, which has been done, the commitment is considered complete. In addition, other parts of the commitment carried out include regulating deadlines for processing applications for obtaining non-profit status, defining grounds for denial of such status, and envisaging free online access to the Register.^{[Note 9: Ibid.]}

Did it open government?

2. Financing of charities

Civic participation: Did not change

The commitment aimed to improve the operational environment for charity organisations by broadening their funding sources. The commitment did not lead to any changes since it was not implemented, due to the position of the Ministry of Finance. It showed that the government did not really “own” and accept this OGP commitment, and was reluctant to implement it.

3. Obtaining not-for-profit status for CSOs

Access to information: Marginal

Civic participation: Marginal

The commitment sought to streamline the procedure for obtaining non-profit status by CSOs. The new law on state registration of legal entities introduced provisions for the one-stop method for registering new entities as non-profit organisations. The government adopted the necessary bylaws. However, the new legal provisions have not been fully enforced in practice. If implemented, it could have significantly simplified CSO registration, and limited their contacts with public authorities (by excluding direct interaction with tax authorities). This would have reduced the possibilities for corruption and red tape. The parts of the commitment that were implemented (regulating deadlines for processing applications for obtaining non-profit status, defining grounds for denial of such status, envisaging free online access to the Register) did improve the operational environment for CSOs, by streamlining relevant procedures and enabling better civic participation, but only marginally. They also improved access to information, as the Register of Non-profit Institutions and Organisations became available online.

Carried forward?

2. Financing of charities

The commitment was not carried over to the new action plan. It appears that, as worded, it goes against the policy priorities of the government, hence, will no longer be pursued. The government should evaluate the operational environment for CSOs regarding taxation and sources of funding in a comprehensive way, and include clear commitments on improving the environment in future action plans.

3. Obtaining not-for-profit status for CSOs

The commitment was not included in the new action plan. The government has to ensure that the adopted legal framework be enforced by taking all necessary organisational and technical measures.