The Tribune

• Report urges tax break, registration consistency

• Says groups saw 10% Xmas donation declines

• And close to one in five operating ‘informally’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian non-profit groups are performing a “remarkable” service to local families and communities despite being under-resourced and suffering a 20 percent cut in government funding through COVID, it was argued yesterday.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business the significant role many non-profits play in Bahamian society could be greatly enhanced if there was more “structure” to the sector’s regulatory regime and better co-ordination between different entities in the sector and with the Government and private industry.

Speaking after ORG released a report that it commissioned on the Bahamian non-profit sector from consultants, Sanigest Internacional, he added that several groups reported Christmas 2022 donations had fallen year-over-year by 10 percent which was “a significant amount” for those on small budgets.

With funding sources constrained as The Bahamas and world economy concentrated on recovery from COVID’s devastating impact, Mr Aubry said ongoing inflation and cost increases were further squeezing the ability of non-profits to fully serve their constituencies.

This, he added, made it even more critical to eliminate current operational challenges through a consistent regulatory framework that gives non-profits access to VAT and other tax exemptions that assist their work. And there also needs to be focus on easing frustration related to the registration process and other government red tape.

The Non-Profit Organisations Act 2019 requires all such entities operating in The Bahamas to be registered with the authorities. The Sanigest report said that, prior to the Act’s passage into law, this process could take between three to seven years with non-profits having to register under the Companies Act 1992 - legislation that was wholly unsuited to their purposes.

Some 1,024 non-profits were registered as of November 2020, but the Sanigest report said: “Registration has been noted to be timelier than prior to the Act, but delays on response continue to be noted by some organisations seeking registration.

“Additionally, the non-profits that were incorporated under the Companies Act, and needed to maintain the incorporation for operational purposes, are now bound by increased regulations designed for for-profit business and have struggled to maintain compliance. Challenges with registration and compliance have impeded organisations’ access to bank accounts and regional and international grant funding.

“For a recent example, one of the groups that was talked to during the qualitative data collection exercise noted how, after Hurricane Dorian, they were in discussions to receive a grant from one of the UN agencies working on the recovery effort,” the Sanigest report continued.

“However, due to their formal status as being incorporated under the Companies Act, several critical months of work were lost immediately following the storm as a grant was not feasible given that category of their organisation, and a contract (with a different value and different stipulations) had to be drawn up instead, and the administrative process started from scratch.”

A survey of 124 Bahamas-based non-profits, conducted between August 2021 and January 2022, revealed that 18.4 percent operate as entities that are not formally incorporated. “Most of them (68 percent) reported being legally incorporated as non-profit organisations, while 18 percent operate as unincorporated non-profits, which points to a degree of informality in the sector, with roughly one in five organisations working without a formal legal entity,” Sanigest said.

“This figure, however, may be expected to increase as several organisations responded [saying they do] not having clarity about their legal status. By individual sector, the highest rates of legal informality were found in community development, arts and philanthropy.”

Seeking to explain the reluctance of some to incorporate, Sanigest said: “This is likely the result of what many civil society organisations report as a considerable difficulty in registering as a non-for-profit (NFP) in The Bahamas, which is particularly burdensome to small organisations.

“To illustrate, one organisation that participated in focus groups discussions, stated that it took them one year to become registered as a non-for-profit (NFP), another 10 months to receive a licence to conduct their activity, and a few more months to open a bank account.

“Another small organisation admitted not even having clarity on what the process to become registered entails, and that after being quoted $3,000 to have someone do the paperwork for them they became discouraged and kept operating informally.”

The report continued: “These difficulties are not only experienced by small organisations. International civil society organisations who participated in the focus group discussions reported having tried to become registered locally and not having been able to do so despite having contacted the relevant authorities.

One major implication of this level of informality is that some of the smaller organisations cannot open a bank account, which hampers considerably their ability to receive funds, even when there are willing donors. The lack of a formal not-for-profit status also prevents some of these civil society organisations from accessing grant funding from international organisations that support activities aligned with their mission.”

The Bahamas, though, has to balance the ‘ease of doing business’ for non-profits with its international obligations. This area was among the last two that The Bahamas needed to come into compliance on before it last December achieved a perfect ‘40 out of 40’ in meeting the benchmarks set by the Financial Action Task Force (FATF), the global standard setter for combating money laundering and terror financing.

Meanwhile, the Sanigest report identified a further source of frustration as the sector’s inconsistent ability to access VAT and other tax breaks as provided for by law. “In The Bahamas, non-profits are able to apply to receive exemption from VAT payment on certain programmatic expenses. It is relevant to mention that donations are not subject to VAT, given that there are no goods or services in return for donations,” it said.

To access the tax concessions, non-profits must apply to be recognised via a Ministry of Finance certificate. Then, the VAT Act sets out 13 criteria under which a charity or non-profit is exempt from paying the 10 percent levy. “However, non-profits can frequently be subject to VAT payment,” the report commissioned by ORG said. “These exceptions include those non-profits that carry out taxable activities and surpass the VAT threshold or expect to reach it in 365 days....

“Additionally, it should be noted that there is significant administrative work required to apply for the VAT exemptions, and as a result many smaller non-profits do not benefit from that option. It was also discussed during consultative meetings that some non-profits were denied after their first application for exemption due to an error in their application process, and then did not re-apply.”

Mr Aubry, acknowledging that registration timelines have improved since the 2019 Act was implemented, told Tribune Business that The Bahamas now has an opportunity to “build a unique legal structure” for its non-profits that will “leverage” the role they play and ensure all parties benefit.

He added that the sector’s ability to access VAT waivers and other tax breaks is “very inconsistent”, with some non-profits applying and receiving them multiple times while others were simply locked out. The ability to access tax breaks was especially important during times when donor financing has reduced, with collective government grants falling by 22.2 percent - from $5.4m to $4.2m - between 2018-2019 and 2020-2021.

“The potential impact of civil society organisations to the well-being of the beneficiaries and their communities is directly related to the reach they have, as well as the depth or degree to which the intervention improves the beneficiaries’ living condition,” the Sanigest report said.

“In The Bahamas, a fourth of civil society organisations reported reaching 50 people or less, and almost one-third estimated reaching over 1,000 beneficiaries. Data from a beneficiary web survey, filled by 87 individuals between April and June 2022, shows that respondents considered that the civil society organisations’ activities improved their living conditions, with 58 percent reporting a significant improvement and 57 percent reporting that their need had been completely met as a result.”