KEYSFINDINGSANDRECOMMENDATIONS

Quick review of legal and policy environment - PROMOTION OF CORPORATE PHILANTHROPY AND PARTNERSHIP

BETWEEN CORPORATES AND CIVIL SOCIETY ORGANIZATIONS IN VIETNAMFebruary 2016

T his paper draws on the study report “Quick review of legal and policy environment for corporate philanthropy and partnership between corporates and civil society organizations in Vietnam”, commissioned by the project “Developing a

sustainable civil society in Vietnam” of the Asia Foundation with the funding from Irish Aid. This paper brief outlines five groups of recommendations which are considered important for policy makers, government bodies, media agencies, civil society organizations (CSOs), international organizations and enterprises in order to create a favorable legal and policy environment for corporate philanthropy and ensure a legal framework for transparent operation of the CSOs, enabling a strategic partnership with the corporate sector and their sustainable development in the future.

As an indispensable result of social development process, Vietnam has witnessed a rapid growth of the CSOs in terms of number, type, scale and scope of action, beside the public and private sectors. With a progressively open legal framework and an increasing financial and technical assistance from the international community, the civil society sector has made great contributions to hunger eradication and poverty alleviation, support to disadvantaged people, HIV/AIDS prevention, environment protection and enhanced policy dialogues, etc. to ensure a democratic, equitable and stable society.

However, due to global economy recession and Vietnam’s achievement of low middle-income country status, most CSOs have been coping with challenges in mobilizing financial sources from international donors. Thus, shifting from being merely dependent on international funding to domestic resources, specifically from the corporate sector, is an objective need and a strategic solution for CSOs’ sustainable development in the coming time. Parallel with the development of the civil society sector, support for disadvantaged people and the community has attracted more interest of the society in general and the businesses in particular. Nevertheless, as of now, there is no research or statistics on the scale and amount of philanthropy activities by more than 500,000 enterprises in Vietnam1. According to some articles and studies, the philanthropy amounts were estimated not small at all.

Theoretically, the relationship between the civil society sector that needs funds to finance their humanitarian and development programs and the corporate sector that is willing to contribute to those activities should have been close and sustainable. But in reality, this relationship is not really positive. There is much misunderstanding and

1 According to the MPI assessment in “Draft plan for SME support -12/2015”, there were 535.000 active enterprises by the end of 2015.

mistrust between the sides2. The question is what “gaps” are to be addressed to enable development of the partnership between these two sectors? Examination and assessment of these gaps from the legal and policy dimension is critical for the sustainable development of the CSOs in Vietnam.

This document proposes five groups of policy recommendations as follows:

1. Enhance knowledge andawareness of the society,government agencies and thecorporate sector on the roles,responsibilitiesandactivitiesofthecivilsocietyorganizationsIn recent years, the civil society sector has experienced a rapid growth in terms of type, scale, and fields of intervention. According to the most recent statistical data of the Ministry of Home Affairs, by December 2014, there were 52,565 associations, of which 483 operate at national level and 52,082 at local levels3, and 402 centers for social protection, of which 233 were non-public. The summary report on the CSOs in Vietnam4 estimated approximately 2,000 science and technology organizations, hundreds of social and charity funds and more than 200,000 community-based organizations. The civil society has made significant contributions to hunger eradication and poverty alleviation, support to disadvantaged people, HIV/AIDS prevention, environment protection and enhanced policy dialogues, etc. to ensure a democratic, equitable and stable society. However, in the context of rapid

2 Summary report on CSOs in Vietnam, January 2012, ADB.3 Government paper on law on association, 2015.4 Summary report on CSOs in Vietnam, ADB, January 2012.

Recommendations:ØState administrative agencies should have more comprehensive and compatible views on the CSO sector. Their

contributions to community development should be acknowledged and regarded. The state management-related requirements should be made public and transparent to ease any unwillingness from the CSO side and enable them to diversify their activities.

ØCSOs should be supported or take action on their own by designing and implementing various communication campaigns to improve their image and enhance public knowledge and awareness on their roles, responsibilities and contributions. CSOs should connect with each other according to their geographical areas and/or fields of intervention in order to promote their image.

ØBoth CSOs and corporates should organize forums or events that closely connect interests of both sectors in order to enhance knowledge, share information, and build up trust and cooperation between these two sectors (for example, an event such as “keeping the environment clean” would attract more interest from environmental protection equipment distributors; and “Care about children’s health” would attract more interest from baby food providers).

ØInternational non-governmental organizations (INGOs) are advised to play an important role in engaging relevant government bodies to organize annual forums for CSOs (similarly to Vietnam Development Partnership Forum of donors), in which relevant government agencies, INGOs, CSOs, and business associations will have an opportunity to share experiences and challenges, and discuss about strategies for partnership.

reduction of international funding to Vietnam, one of the biggest concerns of most CSOs is how to secure the financial resources needed to sustain their organizations. In this regard, many CSOs have tried to diversify their financial resources as well as initiate more innovative and sustainable strategies of fundraising that give emphasis to the domestic resources, especially the corporate sector. This requires CSOs to enhance their image and build trust in the society and the corporate sector.

The report “Image of the CSOs in the printing press and the internet” (ISEE 12/2011) highlighted that “Despite the fact that the CSOs in Vietnam have made significant contributions to social life, a majority of the public have little knowledge about their misions, roles, functions and their necessity to social development process. One of the reasons for this misunderstanding is little introduction of these organizations in the mass media. On one hand, CSOs are less proactive in developing and publicizing their images to the public. CSOs generally lack skills and experiences to approach the media, develop strategic messages and mobilize social support for their mission. On the other hand, the media has not published information about CSOs profoundly and attractively”5.

This study reconfirms findings of the existing studies that there has been little or inadequate understanding among corporates of the CSOs. Some businesses perceived CSOs as beneficiaries (i.e. social/charity funds, social protection centers, etc.), while others regarded CSOs as mass organizations (i.e. Fatherland Front, Women’s Union, Youth

5 Image of the CSOs in the printing press and the Internet, ISEE, 2011.

Association, Red Cross Society, etc.). They even showed their skepticism of the transparency and effectiveness of CSOs’ charity activities because they never heard about these in the newspapers or have themselves experienced it. Partnership with CSOs has never been mentioned strategically because the corporates do not know why and how to cooperate with the CSOs and what values will CSOs bring to this partnership. However, when corporates learn about activities and contributions of CSOs to the society, they showed their positive responses and willingness to support and cooperate with the CSOs for the sake of the society development.

Except from a few CSOs who had established relationship with the corporate sector, most of them have approached the corporates in a way of asking for kindness and charitable giving. Most of the CSOs failed to share common interests with the corporates and did not understand the structure of decision-making on the corporates’ expenditure and their difficulties in financial management and accounting. The CSOs have not frequently appeared in the mass media; if appearing, more focus is placed on their charitable activities. The CSOs’ capacity generally remains limited, especially in terms of organization development, management, access to information and fundraising.

Improving knowledge and awareness of the society, especially the corporate sector, on the CSOs is the most important factor that will contribute to promotion of the partnership between the corporate and civil society sectors.

A synthesis and analysis of relevant legal documents showed that:• The Government of Vietnam demonstrates a

consistent point of view on encouraging and supporting enterprises to implement their corporate philanthropy. Scope and subject of regulations is clearly defined, strongly promoting social contribution and corporate philanthropy of enterprises.

• Tax incentives (exemption or deduction) on enterprises’ tax income, export-import tax or value-added tax are applicable to incomes from aids, production and business activities related to emergency aids, humanitarian aids, investment in geographical areas with extremely difficult socio-economic conditions, or use of vulnerable people for labor and expenses on charity giving. Policy amendments and adjustments which have recently been made show the tendency of encouraging the mobilization of more corporate resources for social and philanthropic activities.

• Legal incentives lie in different legal documents at different levels (Laws, Decrees, Circulars…) and have been subject to numerous adjustments and amendments. This causes difficulties in understanding and implementing these regulations. Moreover, the duration between issuance of laws and their respective guiding circulars is often prolonged.

• Legal documents have been made by using an old approach – listing things “encouraged to be done”, rather than using the approach that stipulates things “allowed to be done unless prohibited by law” and the approach of behavior change. Therefore, these legal documents cannot cover all circumstances of the reality but are often adjusted or supplemented by adding or removing any specific things or actions. For example, the Circular 96/2015/TT-BTC on enterprise income tax was supplemented with two additional activities that included funding for vocational trainings and building civil bridges). Additionally, too concrete regulation on the proportion and quantity of labors who are disadvantaged people makes it more difficult to implement.

• Processes and procedures to benefit from enterprise income incentives are not fully guided, have some irrational and complicated regulations, and are not stimulating philanthropic activities. Expenses on supporting to overcome consequences of natural disasters or support patients are considered applicable if they are channeled through “organizations which are eligible for fundraising according to the law”. Currently, there is no legal document defining and listing “organizations which are eligible for fundraising”; therefore, the implementation is unwilling, complicated and time-consuming, not to mention the fact that individuals and donors prefer the simplicity and convenience in charitable activities and hope their money is delivered directly to the beneficiaries.

• Expenses on funding for beneficiaries of social welfares and scientific research are not yet fully guided. While implementation instructions in the existing relevant Circular (Circular 78/2014/TT-BTC) only states that it needs to be implemented “following regulations of the law” which implies that it is impossible to implement.

• All tax incentives (exemption or deduction) are only adjusted for “those organizations which are established according to the law”, understood as the organizations that have legal status. Receipt of funding from INGOs also requires Vietnamese NGOs (VNGOs) being “established according to the law” (Decree 93/2009/ND-CP). For this reason, community-based organizations (CBOs) are not be eligible to receive any funding from any domestic or international sources.

• The corporates’ knowledge of policy incentives relating to corporate philanthropy is limited. There was almost no enforcement and application of these policies by corporates. Thirty-two interviewed corporates in this study (17 interviewed in Hanoi and HCMC and 15 surveyed via questionnaires in Da Nang) have not applied for tax incentives for their giving activities. Among them, 28 have not been aware of the availability of these policies. On the websites of relevant state administrative agencies, business associations and CSOs, no specific documents on relevant tax incentives have been found.

Incentive policies cannot be put into effect if the targeted beneficiaries are not aware of these policies.

2. Supplement, amend and complete relevant legal documentsto promote corporate philanthropy and community support;Enhance the propaganda and popularization of these legaldocumentsamongthecorporates

Recommendations:ØPolicy makers should supplement, amend and complete relevant legal provisions and policies to promote

corporate philanthropy. Specifically:

• Amend and supplement several regulations in the Law on Enterprise Income Tax on deductible expenses from taxable income in order to regulate “charitable” and “corporate philanthropic” acts, rather than providng a detailed list of deductible expenses, because the Law cannot cover all the circumstances in the real world.

• Eliminate the requirement that some expenses should be prescribed through “government agencies who are eligible for fundraising” (i.e. Decree 93/2009/ND-CP). Instead, any individuals or organizations who have a clearly defined legal status should be allowed to act as direct beneficiaries or intermediaries of receiving the funding in order to address the social issues.

• Provide more guidelines on required financial and accounting procedures for expenses on scientific research funding.

• Supplement the regulations on honoring and awarding enterprises and entrepreneurs (Decision 51/2010/QD-TTg) with a greater priority given to the enterprises that have philanthropy activities and contributions to community development. It is recommended to formulate national, provincial and municipal awards to honor corporates with best philanthropy activities for the community.

ØState administrative agencies (Department of Enterprise Development – MPI, MoIT, MARD, etc), central and local tax departments, VCCI and business associations should develop large-scale communication and propaganda programs to widely disseminate current policies and laws related to corporate philanthropy. For example, a specific feature on legal information and updates on corporate philanthropy should be added on the website of these government bodies, or a manual or handbook on tax incentives on corporate philanthropy should be prepared and distributed widely to the enterprises and CSOs.

3. Continuecapacitybuilding(e.g.organizationaldevelopment,governance,professionalcapacity,fundraising…)forCSOs

A quick assessment conducted by the Center for Community Empowerment (CECEM) in 2014 indicated that a few VNGOs had received financial aid from and cooperated with domestic enterprises. In addition, those who had received support from enterprises commented that it was not easy for CSOs to cooperate with the enterprises due to two major reasons - not easy to reach information on cooperation/partnership opportunities with enterprises and not easy to meet the requirements for the CSO – corporate partnership. Findings from this study are consistent with this argument.

In this study, all participating enterprises expressed their readiness and willingness to support and corporate with CSOs for community development purposes. To facilitate an effective partnership, the enterprises hope that: They will have a better understanding of CSOs’ vision, mission and activities; They will have evidence of effectiveness and transparency of CSOs’ activities; Reputation of CSOs’ leaders will be affirmed; CSOs will have clear-defined projects/programs; and CSOs will have a

mid-term action plan that is in accordance with the corporate’s desires.

In order to cooperate with the corporate sector, besides enhancement of communication activities to improve CSOs’ images and mutual understanding between both sectors as mentioned above, CSOs need to be capable of strategic planning, project development, management and implementation that is in conformity with both the CSO’s and the corporate’s development plans and strategies.

In addition, one more important factor that might affect the CSO – corporate partnership is the transparency of CSOs’ activities, especially transparency in financial management. In this study, all interviewed CSOs are committed to abide by the tax law and financial policies. However, they admitted that they have limited understanding of taxation, accounting standards and financial policies due to lack of guiding documents which would provide them with adequate information on these issues.

4. CompletethelegalframeworktoensurethatalltypesofCSOsoperate legally, transparentlyandequally

Due to the distinctive conditions of historical and political system of Vietnam, the legal framework has been set up, in which different types of social organizations have been regulated by different legal documents at different levels. Based on the review of the existing legal and policy documents related to the five different types of CSOs (namely associations, non-state science and technology organizations/institutions (VNGOs), social/charity funds, centers for social protection, and community-based organizations), and the discussions and interviews with CSOs, following are the general comments provided:

• Associations: The Decree 45/2010/ND-CP has acknowledged the right to association establishment for social organizations, if meeting the conditions as required in the laws. The definition of “Association” also covers the non-for-profit aspect of the Association. The Association’s legal status is clearly defined. The Association has the rights to mobilize all resources for their activities, including ODA funding (on behalf of the line agency according to the Decree 38/2013/ND-CP on management and use of ODA funding). However, the establishment procedures of the Association are quite complicated. The preparatory board for the establishment of the Association has to determine by itself “the relevant line sectoral management

Recommendations:ØINGOs should support local CSOs to conduct “assessments of training and capacity building needs” in the

new development period, not only focusing on local NGOs but also other types of CSOs (e.g. associations and CBOs). Local NGOs which have received support from INGOs and become qualified and experienced enough should take the leading role in building capacity for other CSOs. These local NGOs should be encouraged to establish and facilitate CSOs’ network which aims at sharing experiences and building capacity among CSOs.

ØThe Government should encourgage enterprises, universities and other educational facilities to pay attention to CSOs’ staff and reduce the tuition fees for them, especially for the training courses on organizational management, financial management and project management. There is a need to establish a training fund which will allow CSOs to send their staff to attend professional courses related to organizational development.

ØThe Government should encourage and support the transformation of social protection centers and social/charity funds into social enterprises in accordance with the Law on Enterprises 2014 and the Decree 96/2015/ND-CP. The goverbment should also consider to develop a project to provide consultative, technical and financial support to support these organizations in the initial stage of this transformation process and document for lessons learnt and improvements for replication.

agency” before submitting it for approval. The duration for verification and approval is too long. Financial management of the Association is just briefly mentioned as “in accordance with the law”, but in fact no specific provisions are yet to be provided. These are policy constraints that affect the development of the associations.

• Non-state science and technology organizations/institutions (VNGOs): have been regulated by the Law on Science and Technology 2013 and the Decree 08/2014/ND-CP. However, there is no specific legal provision that confirms the non-for-profit nature of these organizations, while their fields of action and intervention are restricted by the Decision 97/QD/TTg. Currently, there are neither regulations nor guidelines on taxes, expenses, accounting and inventory systems for these organizations.

• Social funds or charity funds: have been regulated by the Decree 30/2012/ND-CP with clearly defined legal status and non-for-profit and non-governmental nature. Regulations on their sources of income are complete and requirements on financial management are clear and strict. According to this Decree, the requirements on legal capital for establishment are considerably higher compared to the previous Decree (from 2 billion VND to 5 billion VND for the national funds, and from 500 million VND to 1 billion VND for local funds) are not suitable to the reality of CSOs and hard to fulfil by CSOs, making it difficult for organizations who want to register as Social funds.

mobilization of domestic sources from enterprises indicated that a clear legal status and transparent financial management are the two highly regarded prerequisites for the successful fundraising of the CSOs. However, among the five above-mentioned CSOs, only social/charity funds have these two conditions. The others either have a legal status but do not have clear regulations for financial management (Associations), or do not have both conditions in place (science and technology organizations and centers for social protection), or are not even regulated by any legal provisions (CBOs).

The process of completing the legal framework for the CSOs in Vietnam is marked with the fact that the Law on Association had been put into the law-making program of the 13th National Assembly (2011-2015). It is highly expected that the Law on Association would create a complete and open legal framework which promotes development of the civil society in Vietnam.

5. FurtherresearchVietnamese enterprises (about 500,000 currently and 1 million in the next 5 years as aimed by the Government) are basically classified into 4 groups: small and medium enterprises, corporations, state-owned big companies, and foreign-direct-investment (FDI) enterprises.

• Non-state centers for social protection: have been regulated by the Decree 81/2012/ND-CP. The Decree provides no article or clause on the legal status of social protection centers. The provisions on their sources of income are also stated completely and largely. Their financial management is just mentioned “in accordance with the current laws”; but in fact there is no specific provision yet. There is also no guiding document on bookkeeping system, accounting and financial management of these organizations.

• Community-based organizations: Up to now, there is not yet any legal framework for the establishment and operation of community-based organizations. In other words, these organizations are operating “outside the law”.

The participating CSOs in this study commented on the difficulties in implementing current policy documents, particularly relating to the establishment licensing due to the inadequate and unclear legal framework as well as the complicated, prolonged and even arbitrarily process procedures.

A quick review of legal and policy documents on foreign aid (i.e. Decree 93/2009/ND-CP on management and use of aids from international non-governmental organizations or Decree 38/2013/ND-CP on management and use of ODA funding) as well as interviews with stakeholders on

Recommendations:ØNational Assembly and relevant Government bodies should finalize and promulgate the Law on Association which

constitutes the key legal framework for CSOs’ establishment and operation. The CSOs are advised to actively participate in advocacy process related to the Law on Association to promote the process of finalization and promulgation of this Law.

ØWhile working on the Law on Association, the Government is recommended to review, adjust and supplement the following four Decrees that regulate 4 types of CSOs as below:

• Associations (Decree 45/2010/ND-CP and Decree 33/2012/ND-CP that amends and supplements a number of articles of the Decree 45): Simplify the procedures for establishing associations; Consider to remove the regulation that requires “the relevant line sectoral management agency” to approve “the registered preparatory board for association establishment”; Shorten the duration for approval of association establishment, internal regulations and position of a chairman of the association; Have a common guiding document for associations on transaction record, accounting and financial management.

• Science and technology organizations/institutions (Decree 08/2014/ND-CP): Make clear the not-for-profit nature of these organizations; Provide specific guidelines on financial management, accounting, and tax and auditing policy for these organizations.

• Social/charity funds (Decree 30/2012/ND-CP): Consider to reduce the regulations on asset contributions to fund establishment and increase the proportion of fund management costs.

• Centers for social protection (Decree 68/2008/ND-CP and Decree 81/2012/ND-CP which amends and supplement a number of articles of the Decree 68): Make clear the definition of social protection centers, which also include caring facilities (studying, day-time boarding) and those (full-time boarding). Local governments should have priority policies on office spaces to enable these centers to fulfil the conditions of material facilities.

ØFor CBOs specifically, it is recommended to continue the policy advocacy efforts so that the Government would soon issue a decree to enable these organizations to register for operation, have legal status and ensure their activities in accordance with the law.

KEYSFINDINGSANDRECOMMENDATIONS

Findings of this study and other existing studies show that different types of enterprises have different views on charity-giving and civil society organizations, as well as different habits, ways and policies of doing corporate philanthropy. However, the study used desk review as the main method, thus the sample for the primary research was limited, mainly to small and medium private-owned and joint-stock enterprises which often have small, direct and spontaneous philanthropy contributions. Therefore, further research/study is needed to provide deeper and more adequate picture of the situation, trends of corporate philanthropy and gaps in policy and law implementations by different types of enterprises.

Apart from those CSOs selected as research subjects in this study, there are also other types of existing social organizations, such as socio-political organizations and unions inherently considered “organizations that are eligible for receiving funding”. These organizations are not only owning and receiving a large amount of resources from the Government, but are also able to mobilize resources from enterprises and the whole society, part of which has been used for charity giving activities. A deeper and more comprehensive research on advantages/disadvantages, analysis and comparison of fundraising strategies of social organizations is also needed for the Government agencies, enterprises and social organizations, particularly CSOs.

It would be a big gap if relevant researches target corporate and civil society sectors only. As mentioned above, besides these two stakeholders, state management bodies also play a critical role in promoting

corporate philanthropy and CSO-business partnership. Particularly, further researches should identify which government bodies involve in this process? What specific roles do they have in policy making, enforcement as well as promotion of partnership between the two sectors? What are the gaps between policy management and enforcement? As long as the interactive relationship between the three stakeholders including state, corporate sector and civil society is clearly defined, specific and effective actions can be taken to enhance corporate giving for community development.

Finally, different types of community philanthropy and their efficiency should be assessed from the beneficiaries’ point of views. Who are the direct beneficiaries of corporate supports and/or CSO programs? The way that these direct beneficiaries evaluate on methods, efficiency and sustainability of these supports is critically important for relevant stakeholders to determine what actions should be taken to enhance the efficiency of resources’ usage.

Findings from this study as well as from our experience show that there is a number of initiatives in corporate philanthropy and models of partnership between corporates and CSOs in humanitarian and development programs. Studies, assessments and documentation of these initiatives and models is still limited and they have not yet been well publicized. Lessons learnt, especially experiences in addressing difficulties and challenges in corporate-CSO partnership (due to policy gaps, difference in views and governance stands between the two sectors, etc.) should be documented and disseminated to stimulate discussion and improve corporate philanthropy and effective partnership between these two sectors.

Recommendations:ØAgencies and organizations which take on the role of facilitating corporate philanthropy and cooperation

with the civil society sector should conduct more in-depth and comprehensive researches on: i) the actual situation and the trends of philanthropic giving among various types of enterprises, included big state-owned companies and corporations, ii) the roles of CSOs, including state-owned CSOs, in mobilizing and using different resources for community development, iii) the roles of state management bodies in both policy making and enforcement, and iv) the methods, effiency and sustainability of resources that should also be evaluated by their own beneficiaries.

ØIt is necessary to conduct assessment and documentation of the existing practices and models of collaboration between CSOs and enterprises in community development programs, draw lessons and best practices for sharing with enterprises, CSOs, community and policy makers in order to improve legal frameworks and promote application of the best and effective practices of the cooperation between the two sectors.

This report was funded by Irish Aid.

The views and opinions set out therein do not necessarily represent the position of Irish Aid.

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