Japan Reduces Restrictions on Nonprofits and Charity

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July 9, 2011; Source: The Economist | The latest issue of the Economist has a story about Japanese nonprofits—called Non-Profit Organizations or NPOs in Japan—that should remind Newswire readers that not all nations buy into the American nonprofit model, sometimes because of social welfare governments providing services that in this country may come only from nonprofits, and sometimes because of cultural traditions. 

In the wake of the earthquake and tsunami that hit northern Japan this past March, a number of volunteer-based Japanese NPOs tried to provide on-site assistance and found their progress blocked many times.  According to the Economist, one group couldn’t get evacuation centers to accept donations of food because there was no evidence or documentation that the NPO was operating with the knowledge and approval of the government ministry in charge. Another was turned away because its supply of food wouldn’t feed everyone who might be in need.

American readers might wonder how a developed nation like Japan could end up frustrating and blocking the charitable efforts of its citizens wanting to provide aid to a region that suffered the nation’s worst ever natural disaster. Apparently, Japan’s laws haven’t been very friendly toward NPOs. The Economist cites three factors:  Japan lacks a tradition of private philanthropy, support for the needy is often expected to come from the family, and officials tend to regard NPOs as "meddlesome amateurs.”

Although there are 90,000 NPOs in Japan, only 223 have a special tax status comparable with the 1.8 million 501(c) nonprofits in the U.S.  The process of obtaining a Japanese version of a 501(c) status is cumbersome, involving hundreds of pages of submissions to the national tax agency that have to be refilled every few years.  A national ministry in charge of the NPO’s area of interest or expertise also has to approve the application, “giving bureaucrats a virtual power of veto” over applications. Contributions to certified NPOs are only 10 percent tax deductible.

But disaster changes attitudes, as it did in the U.S. with 9/11 and Hurricane Katrina. The National Diet of Japan passed a law this past June which will go into effect in stages this year and next. The process of certifying NPOs for a special tax status will shift from the national tax agency to municipal authorities, which advocates suggest will move 70 percent of NPOs into the special tax status. The tax deductibility of contributions to those groups will increase to 50 percent.

It may be a good thing for Japan to tap the charitable and volunteer instincts of its population, but there is a problem in the mix, just like the situation facing U.S. nonprofits.  The impetus for the regulatory changes was more than the earthquake. The Japanese economy and population have not been growing, leading to less tax revenues flowing to the government and an increasingly constricted governmental ability to provide and pay for services. 

The Economist notes that the population, particularly the growing numbers of the elderly, have been demanding more services despite the reduced revenues. One advocate applauded the regulatory changes saying, "The government has no other choice but to cut social services and shift responsibility on to the NPOs."  It is the notion of turning to nonprofits and charity to pay for and deliver services that were long supported by government—as they perhaps should be—that is the rub. 

Nonprofits are meant to be a supplement to, not substitute for government, but in the U.S.—and apparently in Japan—filling the ever widening gaps in government provision of basic human services seems to be part and parcel of the emerging new nonprofit mission.—Rick Cohen