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LAW AND CIVIL SOCIETY IN THE SOUTH PACIFIC

Non-Government Organisations in Solomon Islands

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CONTENTS INTRODUCTION

1. LEGAL FRAMEWORK FOR THE CREATION AND OPERATION OF NGOs A. Registration (Incorporation), Organisation and Operation of NGOs i. Registration ii. Registration Authorities iii. Registry

B. Cancellation, Dissolution and Liquidation i. Cancellation ii. Appeals iii. Liquidation

C. Purposes and Activities of NGOs i. Legislative Approach towards Objects of Organisations ii. Determination of Status iii. Media Access

2. GOVERNANCE i. Governing Bodies ii. Powers and Duties of Organisations and Governing Bodies iii. Supervisions and Audit of Accounts iv. Conflicts of Interest v. Distribution of Profits and other Private Benefits vi. Umbrella Organisations

3. FINANCE AND ECONOMIC ACTIVITIES A. Fundraising Activities B. Tax Exemptions and Deductions

4. CONCLUSION

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Non-Government Organisations in Solomon Islands

REPORT prepared by David Lidimani

INTRODUCTION Solomon Islands is an archipelagic State of approximately 900 islands located north of Australia and Vanuatu, and east of Papua New Guinea. The country has a total population of just below 500’000 people with a total land area of around 29’000km². Around 80% of the population live in rural areas with active participation in the subsistence economy. Upon independence from Britain in 1978, Solomon Islands adopted a unitary system of government with decentralised provincial administrations. Thus, the country is divided into nine (9) provinces, each administered by an elected Provincial government that exercises limited powers devolved to it by the Central Government.1[1] Pluralism is the characteristic of the country’s legal system given the divergent sources from which its laws are found. Thus, besides written laws that are based, for instance, on international treaties and or the English Common law, there is also kastomary law2[2] which thrives predominantly through an oral culture. Despite the little progress to date in having it codified, this does not reflect well the fact that kastom or kastomary law has the greatest impact on the life of every rural Solomon Islander almost on a daily basis. The history of Non-Government Organisations (NGOs)3[3] in the country predates its independence, with clear recognition from both the colonial and post-colonial administrations as demonstrated in their initiatives in creating environments more conducive to further expansion and development of the NGO sector through legislation.

1[1] Mainly governed by the Provincial Government Act 1997 (repealing the Provincial Government Act

1981). 2[2] As distinguished from customary international law.

3[3] The term ‘NGO’ will be used throughout this report to denote all forms of organisations that existed as charities, civil society organisations, non-profits, and all such other organisations the object of which is not to make profit for private gain.

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In contemporary Solomon Islands, the roles played by these organisations do not falter and remain just as effective given their perceived nature as alternative development partners. The organisations provide an avenue through which development reaches out to the majority of the populace4[4]. Similarly, they provide the channel through which concerns of the general populace can be brought to the attention of the Government, private sector and overseas development partners. This becomes vital for realistic assessments of government policies and activities on communities, hence ensuring that policies and programmes are focussed so as to better address the needs of the people and country at large. NGOs in Solomon Islands comprise both membership and non-membership organisations, and those carried out for mutual and public benefit. Of these categories, there are those that existed as formal organisations with juridical status, and those that operated informally. As to the latter, a lot of community-based organisations or associations are currently operating successfully without attaining formal status as juridical entities pursuant to applicable laws. But this does not in any way impede the effectiveness of their operations, let alone the privileges which they enjoy as civil society organisations. Legal developments pertaining to NGOs have been long overdue and relatively stagnant if drawn against the backdrop of changing social and economic circumstances, and the rather complicated modus operandi of newly emerging NGOs. The two most important pieces of legislation, viz. the Cooperative Societies Act and the Charitable Trust Act, were adopted way back in 1953 and 1964 respectively, but none has undergone any major overhauls since. Any major reviews to be undertaken in the future will need to commence with these two statutes. The laws regulating NGOs in the country are both general, and organisation specific. In terms of general statutes addressing formation, incorporation and regulation of such bodies, the following are of significance: Charitable Trust Act5[5], Cooperative Societies Act6[6], and Credit Unions Act7[7]. Special legislation focusing on specific organisations include the Church of Melanesia Trust Board (Incorporated) Act8[8], Church of the Province of Melanesia (Solomon Islands) Property Act9[9], Solomon Islands National Sports Council Act10[10], Solomon Islands Red Cross Society Act11[11], and the Winston Churchill Memorial Trust Act12[12]. Focusing on the financial aspects of the operation of NGOs, the following statutes are applicable: Customs & Excise Act,13[13] Goods Tax Act,14[14] Income Tax Act,15[15] Sales Tax,16[16] and Stamp Duties Act.17[17]

4[4] Both from the urban and rural areas alike.

5[5] Cap.55

6[6] Cap.164

7[7] Cap.165

8[8] Cap.156

9[9] Cap.157

10[10] Cap.166

11[11] Cap.167

12[12] Cap.56

13[13] Cap.121

14[14] Cap.122

15[15] Cap.123

16[16] Cap.125

17[17] Cap.126

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Whilst the majority of NGOs are local or national organisations, there is also a recorded number of international NGOs operating in the country. It is worth noting that the post-conflict period witnessed an increase in international NGOs operating in the country either through partnership arrangements or established local offices. This is a situation which is facilitated arguably by a less rigorous establishment environment. The focus of NGOs in Solomon Islands is mainly in the areas of social development. Given that the NGOs in the country range from church-based organisations, special interest groups, broad-based development organisations, trusts, and community-based organisations, the areas covered are so diverse. In consequence, churches are, for instance, particularly active in education and training, medical and health services, as well as youth issues. For instance, there is in operation a wide network of church-based youth and women organisations. The latter are mainly engaged in addressing gender issues, whilst church-based youth organisations are mainly dealing with youth and related issues. Other special interest groups have their programmes focussing on domestic violence, family planning, community peace restoration and development, HIV/AIDS, environment, and marine conservation. In general, all these organisations pursue the common goal of achieving a better life for members and the populace generally, as well as contributing towards the development goals of the country.

1. LEGAL FRAMEWORK FOR THE CREATION AND OPERATION OF NGOs The supreme law of Solomon Islands is the Constitution promulgated in 1978. Although the Constitution makes no specific reference to NGOs, its provisions can be taken to grant individuals the right to congregate for any such purpose not prohibited by law. Of particular relevance to NGOs would be sections 12 and 13 of the Constitution which protect the freedom of expression and assembly and association respectively. With respect to the freedom to assemble and associate, the scope permits an individual to assemble and associate with other persons and in particular to form or belong to political parties or to form or belong to trade unions or other associations for the protection of his interests.18[18] Note however that the said freedoms are not absolute, as they can only be exercised to the extent that they do not run counter to any laws providing for such issues and exceptions as prescribed under sections 12 and 13. Whilst the Constitution provides protection of the fundamental freedoms, the rules for the formation and organisation of NGOs are laid out in detail in various statutes. These will be outlined below. A. Registration (Incorporation), Organisation and Operation of NGOs (i) Registration Registration procedures and processes are governed by various statutes, thus, not centralised under a single statute as may have been the case in some countries. Provided the requirements are complied with, the process generally is easy, inexpensive, and not rigorous. Specific statutes under which registration of an NGO can be done are as follows: a. Charitable Trusts

18[18] s.13, Constitution of Solomon Islands 1978

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The procedures and processes of the Charitable Trusts Act purport to govern the incorporation of trust associations established for religious, educational, literary, scientific, social or charitable purposes. To begin the process, an application needs to be made to the Registrar of Companies19[19] for a certificate of registration. 20[20] Having satisfied with the nature, extent, objects and circumstances of the applicant association, the Registrar may then issue such certificate. It is also a requirement that the application for incorporation must be made in writing to the registrar and signed by the persons in accordance with the First Schedule. Where it is deemed necessary, the registrar may require the furnishing of additional information for purposes of verification of the statements and particulars as provided in the said application. 21[21] b. Cooperative Societies The Cooperative Societies Act requires that for a society to be eligible for registration, it must have as its object the promotion of the economic interests of its members in accordance with cooperative principles.22[22] Unlike the Charitable Trusts Act, there is appointed under the Cooperative Societies Act a Registrar of Cooperative Societies who is the issuing authority for the certificate of registration.23[23] Registration is done simply by applying in the prescribed form to the Registrar pursuant to Section 6 of the Act. Information to be provided include the proposed name of the society, particulars of the meeting at which it was resolved to have the society registered, list of members and capital subscribed by each, name and address of the committee and officers of the society, and address of the society. Further, such application must be accompanied by three (3) copies of the proposed bylaws of the society, and such other information as may be required by the Registrar. The process is considered complete with the issuance of the certificate of registration upon payment of the prescribed fee24[24], by the Registrar. c. Credit Unions Although the Credit Unions Act 25[25]is not clear on whether registration or incorporation only follows application, it can be inferred from section 5 that the filing of a Memorandum of Association (MOA) marks the beginning of the registration process. Filed together with such MOA will be an affidavit verifying the signatures to such Memorandum of Association, a copy of the supplementary bylaws, a copy of a report of the preliminary meeting of members preceding such filing, and a prescribed fee.26[26] Matters that need to be stated in the Memorandum of Association to be filed include: name of the credit union; group of person(s) to whom membership is limited; address of credit union office in Solomon Islands; par value of its shares; and, name and particulars of members

19[19] An office established under the Companies Act.

20[20] s.3, Charitable Trust Act 21[21] s.4(2) 22[22] s.4 23[23] s.3

24[24] s.7, Cooperative Societies Act. The current prescribed fee is just a nominal amount of SI$2.00! 25[25] Cap.165.

26[26] s.5 Credit Unions Act

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and their respective subscriptions.27[27] The process is finally completed with the issuance by the Registrar of a certificate of incorporation.28[28] (ii) Registration29[29] Authority The responsibility for registering non-membership NGOs falls generally on the Registrar of Companies – an authority set up under the Companies Act.30[30] For membership organisations, registration is covered under either of the statutes addressed in (i) above. Thus, registration of membership organisations will be as follows:

a. cooperative societies to be registered by the Registrar of Societies;31[31] b. credit unions to be registered by the Registrar of Credit Unions;32[32]and, c. charitable trusts to be registered by the Registrar of Companies.33[33]

Categories (a) and (c) are currently being performed by a single Public Service officer designated as the Registrar-General. Category (b) however is performed by the head of the Financial Institutions Department within the Central Bank of Solomon Islands as the designated Registrar of Credit Unions. This is done under their supervisory function. (iii) Registry As earlier highlighted, there is no centralised registry for NGOs, as separate statutes create their own registries. However, from an operational perspective, there is some element of centralisation as all such records can be searched or inspected at the Office of the Registrar-General, which is a public office. In terms of statutory registries, these do exist under the Cooperative Societies Act34[34], and the Credit Unions Act,35[35] whilst the Charitable Trusts Act36[36] utilises the existing registry under the Companies Act. Public accessibility to such registers and records is guaranteed in all cases. With the exception of the Register of Cooperative Societies, public access to those of credit unions and charitable trusts would require the payment of nominal fees.

B. Cancellation, Dissolution and Liquidation (i) Cancellation Specific provisions, with implications for both membership and non-membership organisations, provide for the cancellation of NGOs from their respective registers. In general, such cancellation can be done voluntarily or involuntarily. Of particular interest will be involuntary cancellations and dissolutions, all of which have been addressed in the statutes to be examined. a. Charitable Trusts

27[27] s.6 28[28] s.8

29[29] Registration also means incorporation, whichever is applicable. 30[30] Cap.175

31[31] r.2 Cooperative Societies Rules 32[32] s.3 Credit Unions Act

33[33] s.3 Charitable Trusts Act 34[34] r.2, Cooperative Societies Rules establishes a ‘Register of Cooperative Societies’

35[35] s.12, Register of Credit Unions 36[36] In s.28, reference is made to records held by the Registrar of Companies instead of ‘register’.

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Section 12 of the Charitable Trusts Act provides for the cancellation of any incorporated trust board on specified grounds. Accordingly, the Registrar of Companies may, by notice, cancel the incorporation of a trust board if he is satisfied that:

i. incorporation was obtained by fraud, misrepresentation or mistake; ii. the objects of an association of which the trust has been incorporated becomes unlawful; iii. the association and or its board of trustees is being used for unlawful purposes; iv. Board of trustees has become defunct or has been dissolved; or v. the board of trustees is not by reason of the state of its affairs able to properly exercise its functions.

b. Cooperative Societies By virtue of section 34 of the Cooperative Societies Act, the Registrar of Societies may by order cancel the registration of a society on certain grounds listed therein. This can be done after an inquiry or inspection upon the Registrar’s own motion of the affairs and accounts of the society, or upon application by at least three-fourths of the society’s members. The Registrar can also cancel the registration of a duly registered society by order in writing where it is proved to his satisfaction that the number of members has been reduced to less than ten. It must also be noted that no registered society can be wound up except by order of the Registrar.37[37] c. Credit Unions Whilst section 73 of the Credit Unions Act empowers the Registrar of Credit Unions to cancel registration of a credit union, the exercise of this power is quite distinctive in that such cancellation is subject to the approval of the Minister. The provisions dealing with processes and grounds for cancellation of credit unions are almost identical to those in the Cooperative Societies Act. Thus, the order for cancellation can be issued:

i. after an investigation has been made into the affairs of a credit union; ii. if incorporation is obtained by fraud, or mistake; iii. if membership is less than fifteen; or iv. upon violations by a credit union of the Act, regulations and bylaws.

Pending coming into effect of the order for cancellation, further order can also be made by the Registrar for the safe custody of the documents and securities and for the protection of the assets of the dissolved credit union.38[38] (ii) Appeals Appeals against cancellation orders and notices are permissible under the Charitable Trusts Act, Cooperative Societies Act, and Credit Unions Act respectively. For cancellations under the Charitable Trusts Act, a member may within thirty (30) days appeal the decision of the Registrar to the High Court.39[39] Similarly, any aggrieved member of a registered society may, within two (2) months, appeal the Registrar’s order to the Minister.40[40] The Credit Unions Act takes a similar approach in

37[37] s.34(5)

38[38] s.72(4), Credit Unions Act 39[39] s.13, Charitable Trusts Act

40[40] s.34(2), Cooperative Societies Act

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allowing appeals by members to the Minister within two (2) months of a cancellation order.41[41] Whilst both the Credit Unions Act and the Cooperative Societies Act do not define “Minister”, guidance can be had from the Interpretation and General Provisions Act, which clarifies that: The expression “the Minister” in an Act means the Minister for the time being responsible for the

administration of the Act or…the Minister so responsible with respect to the provision of the Act in which the

expression occurs.42[42] It must be noted however that further provisions in both the Cooperative Societies Act and Credit Unions Act purport to limit the jurisdiction of courts. Hence, the Cooperative Societies Act43[43], which is also replicated in the Credit Unions Act, expressly states: Save in so far as is hereinbefore expressly provided, no civil court shall have jurisdiction in respect of

any matter concerned with the dissolution of a registered society under this Act. (iii) Liquidation a. Cooperative Societies Upon cancellation pursuant to s.34 (1) of the Cooperative Societies Act, the Registrar then appoints one or more persons to be, subjected to his direction and control, the liquidator (s)of the society.44[44] The liquidator is equipped with a wide scope of powers45[45] which can be used to summon inter alia the attendance of parties and witnesses and to compel the production of documents by the same means and so far as may be in the same manner as is provided in a civil court.46[46] At the closure of the liquidation process, a sequence of priorities takes place with regard to the assets of the society47[47]. First, funds of the society will be used to cover a liquidation cost, which is followed by the discharge of all deposit liabilities to its depositors followed by discharge of liabilities of the society. Next is the payment of the share capital followed by payments of dividends if so

41[41] s.73(2), Credit Unions Act

42[42] s.16(2), Interpretation & General Provisions Act 43[43] s.41

44[44] s.37, Cooperative Societies Act 45[45] These include-; determining contributions to be made by members, past members, arrange for non recorded claims of creditors to be admitted or excluded from distribution, determining questions of priority for creditors, referring disputes for arbitration and representing the society (ies) in legal deliberations, determining costs of liquidation, in charge of collection and distribution of assets at winding up of societies, compromising claims by or against society, hold general meetings for purposes of liquidation, have custody if books, documents and assets of society, carrying on business of society where necessary to see thorough winding up and arranging for distribution of society’s assets for approved scheme of distribution. 46[46]s.38 (2). 47[47] S. 42.

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prescribed in the by-laws of the society. Any unclaimed48[48] assets will be published in the Gazette upon the closing of the liquidation.49[49] b. Credit Unions Upon cancellation, a liquidator is to be appointed by the Registrar to exercise such powers50[50] as may be conferred upon him for the liquidation of the credit union.51[51] There is great similarity in the process and procedures for liquidating credit unions and cooperative societies. The effect of liquidation is spelt out in section 80 of the Credit Unions Act.52[52]

C. Purposes and Activities of NGOs Whilst Solomon Islands, in general, has an environment which is flexible in accommodating organisations of various natures and a diversity of purposes and objects, common guidelines were set in the country’s laws to ensure uniformity thus avoidance of arbitrariness. Currently operating in the country are NGOs whose objects are either for public benefit or private membership benefit. But in either case, the common denominator which would arguably get the highest subscription from NGOs is the promotion of economic interests of members. Nonetheless, an examination of the operating Acts would provide an insight into the purposes and activities governed under Solomon Islands’ laws. Of focus will be the Charitable Trusts Act, Cooperative Societies Act, Credit Unions Act, the Solomon Islands Red Cross Society Act, Solomon Islands National Sports Council Act, and the Winston Churchill Memorial Trust Act. (i) Legislative Approach towards Objects of Organisations a. Charitable Trust

48[48] These will be published in the Gazette and all claims against the funds of the society liquidated shall be proscribed when two years have elapsed from the date of the publication of the Gazette notice. 49[49] On the contrary, the Registrar shall make any residue of the funds that are unclaimed available for use for any cooperative purpose at his discretion (s.42 (3)). 50[50] The liquidator has all property vested in him from the date of appointment to ensure the same are subject to the liquidation. The obligations of the liquidator to execute liquidation of the credit union are almost identical to those of the liquidator appointed for Cooperative Societies.

51[51] s.75, Credit Unions Act 52[52] s.80(1) provides: In the liquidation of a credit union, the funds, including any reserve fund, shall

be applied- (a) first to the costs of liquidation;

(b) second to payment of the liabilities of the credit union; (c) third to the repayment of deposits;

(d)fourth to the repayment of share capital and dividend for any period for which no dividend was paid; and

(e)fifth to pay the balance to members in proportion to the share capital holding of each member.

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The Charitable Trusts Act is unequivocal in providing for the registration of an association whose object is one of either a religious, educational, literary, scientific, social or charitable purpose.53[53]

b. Cooperative Societies The Cooperative Societies Act, by virtue of section 4, governs the registration and operation of a society whose object is the promotion of the economic interests of its members in accordance with cooperative principles.54[54]

c. Credit Unions The Credit Unions Act regulates a union of persons associating themselves for the objects of promoting thrift among members, creation of a source of credit at fair and reasonable rates for provident and production purposes, receiving of members’ savings, and for the improvement of the social and economic well-being of its members.55[55]

d. Voluntary Aid Section 5 of the Solomon Islands Red Cross Society Act list the objects of the society, most of which relate to voluntary work and aid in the event of both man-made and natural disasters. Thus, the Society is recognised as a voluntary aid society auxiliary to public authorities.56[56]

e. Sports The Solomon Islands National Sports Council Act establishes a national sports council whose function or purpose includes the fostering and promotion of the development of sport and recreation in Solomon Islands.57[57]

f. Education The Winston Churchill Memorial Trust Fund Act is unique in that it establishes a fund, instead of an enabling environment, to be used for the purposes of providing scholarships, bursaries or other means to enable residents of Solomon Islands serve better either in the public or private capacity in the interest and development of the country. (ii) Determination of Status It is quite unfortunate however that there is not in existence any institution, whether statutory or otherwise, the function of which is to determine the qualification or otherwise of NGOs for either public benefit or charitable status. This is a matter left to the enabling statutes and internal

53[53] s.3 Charitable Trusts Act

54[54] s.4, Cooperative Societies Act 55[55] s.15, Credit Unions Act

56[56] s.6 57[57] s.4 of the Act

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governance arrangements of such organisations, for instance, constitutions and memorandum of associations. (iii) Media Access Media in Solomon Islands is not strictly censured, thus, allowing a high level of accessibility to NGOs. There are similarly no restrictions on the dissemination to the public of material published by such organisations. Besides participation in the print media, certain NGOs have recently ventured out into the broadcast and telecast media by running a FM station, and TV network respectively. 2. GOVERNANCE (i) Governing Bodies The following internal governing bodies are established under statute for both membership and non-membership organisations: a. Charitable Trusts Act i. Board of Trustees58[58] b. Cooperative Societies Act i. Committees as prescribed in a society’s bylaws c. Winston Churchill Memorial Trust Act i. Board of Trustees59[59]

d. Credit Unions Act i. Board of Directors60[60] ii. Credit Committee61[61] iii. Supervisory Committee62[62] iv. League of Credit Unions63[63]

a. Solomon Islands National Sports Council Act

i. National Sports Council64[64]

b. Solomon Islands Red Cross Society Act i. Council65[65] ii. Management Committee66[66]

58[58] s.3 59[59] s.4 60[60] s.53 61[61] s.53 62[62] s.53 63[63] s.66 64[64] s.3 65[65] s.8

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(ii) Powers and Duties of Organisations and Governing Bodies The powers of governing bodies registered under laws of Solomon Islands can be briefly described as follows: a. Charitable Trusts Act i. Board of Trustees To have perpetual succession and a common seal, and may hold real and personal property of whatsoever nature, sue and be sued in all proceedings civil or criminal, and do and suffer to be done all that corporate bodies may do and suffer to be done.67[67]

b. Cooperative Societies Act Pursuant to section 8 of the Act, a cooperative society have perpetual succession and with power to hold property, to enter into contracts, to institute and defend suits and other legal proceedings, and to do all things necessary for the purpose of its Constitution. These powers will be exercised on behalf of the society by a committee elected at the annual general meeting of the same.68[68] c. Winston Churchill Memorial Trust Act By virtue of section 8 of the Act, the Board of Trustees is empowered:

• to solicit, acquire, purchase, take, hold and enjoy any moneys or other movable or immovable property;

• sell, convey, assign, exchange, surrender, yield up, mortgage, demise, transfer, donate or otherwise dispose of or deal with any moneys or other movable or immovable property; and

• do such other things as may be necessary or expedient for the purpose of carrying out the objects of the Fund.

d. Credit Unions Act Whilst most issues will be governed by the bylaws and supplementary bylaws of a credit union, some of the powers prescribed in the Act to be exercised on behalf of a credit union by its Board of Directors include:

• the power to invest or deposit its funds with licensed banks in Solomon Islands or with other credit union;69[69] to borrow from persons or institutions subject to certain limitations;70[70] and granting of loans to members for productive and provident purposes.71[71] In addition to the Board of Directors, there is a Credit Committee, and a Supervisory Committee. The Credit Committee has general supervision over all loans to members and the fixing of amounts

66[66] s.8 67[67] s.8 68[68] s.32 69[69] s.40 70[70] s.41 71[71] s.44

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of interest on loans; 72[72] imposition of security conditions on loans, and the determination of guarantors required for loans and conditions of repayment.73[73] Likewise, the Supervisory Committee has the duty to examine the affairs of the credit union, including the auditing of its books.74[74] Another creation of the Act is the League of Credit Unions which has the purpose of providing guidance, promoting and protecting the common interest of credit unions.75[75] The League thus operates as the supervisory body of all credit unions registered under the Act.76[76]

e. Solomon Islands National Sports Council Act The powers vested in the Council include the granting of monies or loans on such conditions to persons or organisations engaged in the execution or promotion of any sporting or recreational activity, utilisation and development of land or other property for recreational purposes, and such other activities necessary for the promotion of the growth of sporting and recreational activities in Solomon Islands.77[77]

f. Solomon Islands Red Cross Society Act The Society has perpetual succession with the power, through the Council, to sue and be sued, purchase, acquire, hold, manage and dispose of movable and immovable property and to enter into such contracts as it may consider necessary or expedient for the purpose of performing its functions and objects.78[78] These powers are further reduced in statutes which may be exercised by a management committee.79[79]

g. Church of Melanesia Trust Board Act The Act governs a trust board which is incorporated pursuant to the Charitable Trusts Act. By virtue of section 4, the Trust Board may from time to time in its discretion amalgamate investments and trust funds held by or vested in it for provincial, diocesan, charitable or other church purposes in the Province of the Church of Melanesia in one investment fund.

h. Church of the Province of Melanesia (Solomon Islands) Property Act

By virtue of the Act, the Archbishop of Melanesia is a corporation sole with perpetual succession, and with power to acquire, hold, manage, control, grant, transfer, mortgage, charge, lease, sell,

72[72] s.58 73[73] s.59 74[74] s.63 75[75] s.67

76[76] Section 66(2) provides: All credit unions registered under this Act shall be members of the League…

77[77] s.5 78[78] s.4

79[79] As inferred from s.8

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demise, dispose of, create or reserve easements over, or otherwise deal with, any property, and capable of suing and being sued.80[80] iii. Supervision and Audit of Accounts Presenting a general overview, organisations that are registered under the Cooperative Societies Act will be subject to the regulatory powers of the Registrar of Societies. Such organisations are required to submit to the Registrar their yearly balance sheets closing on December 31st of the preceding year; prepare and present reports of their yearly operations to annual general meetings; and have quarterly returns sent to the Registrar.81[81] Of importance is the mandatory requirement to have their accounts audited at least once a year by persons authorised by the Registrar.82[82] Similarly, the account of a credit union is subject to yearly auditing by an auditor authorised by the Registrar of Credit Unions and approved by the Supervisory Committee.83[83] Although it plays some form of supervision and direction, the League of Credit Unions has no express power to audit the accounts of its members, as such is within the powers of the Registrar of Credit Unions. The National Sports Council is required to prepare statements of accounts for each financial year,84[84] and have its accounts audited by the Auditor-General or such other person on such terms and conditions the Auditor-General may impose.85[85] There are no provisions of the same in either the Winston Churchill Memorial Trust Act or the Charitable Trusts Act. But it is presumed that such trusts, by operation of their internal rules, will have their accounts at some stage supervised and audited. This seems the likely case for trusts registered under the Charitable Trusts Act. iv. Conflicts of Interest Given, that Common law forms part of the received laws of Solomon Islands, the issue of conflict of interest in relation to the exercise of powers either as trustee or director is governed by its rules and principles. It is presumed however that this principle has been addressed in detail and incorporated in the constitutions or inception documents of most NGOs.

v. Distribution of Profits and other Private Benefits a. Cooperative Societies The Cooperative Societies Act permits the distribution or disposal of profits to members after a fourth of the net profit is being carried forward to a reserve fund.86[86] Thus, such profits available for distribution may be divided among the members by way of dividend or bonus. Rule 19(2) provide that a bonus based on wages or on the value of the products of a member, or a bonus or rebate on patronage calculated in proportion to the amount of business done by each

80[80] s.3 81[81] s.40 82[82] s.47 83[83] s.48 84[84] s.13

85[85] s.14. Note that such accounts and reports are to be laid before Parliament by the Minister (s.15). 86[86] s.30

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member with the registered society, may be distributed every year after audits have been carried out.87[87] Note further that no registered society is to pay dividend on share capital exceeding five (5) per cent per annum on the capital actually paid up.88[88] b. Credit Unions By virtue of the Credit Unions Act, dividends can be paid on members’ shares after ten per cent of the gross income has been transferred to a reserve fund, and deduction of operational expenditure for the year has been made.89[89] The maximum rate for the payment of dividends on members’ shares is six (6) per cent per annum.

vi. Umbrella Organisations There are currently in existence two organisations which can be described as umbrella organisations. One is established by statute, whilst the other is set up voluntarily. The League of Credit Unions, created by the Credit Unions Act with prescribed supervisory functions, operates as the statutory umbrella body for credit unions. Similarly, a grouping of NGOs has led to the voluntary creation of a supposedly coordinating body – the Development Services Exchange. Contrary to the League of Credit Unions, the powers and functions of the Exchange are not well defined. Neither does it assume any sanctioned supervisory role over NGOs generally. 3. FINANCE & ECONOMIC ACTIVITIES A. Fundraising Activities NGOs have to date enjoyed in general an environment in which their fundraising drives are undertaken without much difficulty subject to prior arrangement with the relevant authorities. In other words, bureaucratic processes, if any, do not necessarily pose any major hindrances to successful fundraising drives for charitable or related purposes. The most active fundraiser is the Red Cross Society, which employs for instance, door-to-door appeals that proves to be successful over the years. By practice, what is normally required in such cases is the authorisation issued by the local government authority exercising jurisdiction over the activity in question or the area within which the purported fundraising is to be held. Despite this general situation however, there are certain fundraising activities, such as lotteries, which require special permits or authorisations. Taking lotteries is an ideal form of fundraising drive for most organisations, although it is expressly required by the Gaming and Lotteries Act90[90] that a Commercial Gaming Permit is required for such purpose (s). However, section 15 of the Act provides exemption from this requirement for any society established and conducted wholly or mainly for:

(a) charitable purposes; (b) participation in or support of athletic sports or games or cultural activities; or

87[87] Cooperative Societies Rules

88[88] r.19(1) 89[89] s.47(1)

90[90] Cap.139

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(c) any purpose not being for private gain or purposes of any commercial nature.

A more common form of fundraising by NGOs is through film or TV shows, an activity which is governed by the Cinematograph Act.91[91] Whilst a theatre licence is required from the Licensing Authority, section 4(5) provides exemption to the effect that no fee shall be chargeable in respect of any cinematograph exhibition given for any charitable, educational or public purpose (s).92[92] The above demonstrates a flexible environment within which NGOs can carry out fundraisings. B. Tax Exemptions and Deductions The financial implications of the operations of NGOs in terms of management and fulfilment of their objects is so significant that lack of financial mechanisms to ensure their financial sustainability will lead to an environment within which they may not be able to thrive. Considered below are some of the mechanisms that are specifically provided in their respective Acts; viz. the Customs & Excise Act,93[93] Good Tax Act,94[94] Income Tax Act,95[95] Sales Tax Act,96[96] and Stamp Duties Act.97[97]

(i) Customs & Excise Act Whilst no specific reference is made to the exemption of charitable, religious or other related bodies from the payment of import or export duties, section 8 of the Act is wide in scope to allow application by NGOs for such exemption. Like so, by virtue of section 8, the Minister may in any case direct the remission or refund in whole or in part of any duty payable or paid on any goods imported or exported, or manufactured in Solomon Islands....

(ii) Goods Tax Act Section 37 of the Act provides for exemption of certain persons or goods (value) from the goods tax. Hence, in the First Schedule to the Act, goods, equipment and materials that attract exemption from tax are those used, (and not for sale):98[98]

a. by an institute of learning conducted by an organisation not carried on for the profit of an individual;

b. by a society, institution or organisation established and carried on exclusively or principally for the promotion of the interests of a university or school conducted by an organisation not carried on for the profit of an individual;

c. by a society, institution or organisation established and carried on exclusively or principally for the promotion of sport;

d. by any religious, charitable or benevolent institution;

91[91] Cap.137

92[92] Section 9 also provides for the issuance of a free film permit if the cinematograph exhibition is given for a charitable, educational or public purpose.

93[93] Cap.121 94[94] Cap.122 95[95] Cap.123 96[96] Cap.125 97[97] Cap.126

98[98] Part II, paras.12,13, 14 and 15

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e. in churches and church services and articles for use in religious institutions; f. in the construction, repair or alteration of buildings or other structures used as a

place of worship or for the advancement of any religious, charitable or benevolent activities.

(iii) Income Tax Act Pursuant to section 16(1) of the Act, the income that accrues in or is derived from Solomon Islands shall be exempt from tax to the extent specified in the Third Schedule. Accordingly, the following incomes, as detailed in the Schedule, are exempted:

a. income of any religious, charitable, benevolent or educational institution approved by the Minister;99[99]

b. income of any cooperative society registered under the Cooperative Societies Act the principal objects of which are the acquisition or development of agricultural land, so far as that income is derived from agriculture;100[100]

c. the income of an association of person established solely for the purpose of controlling or furthering any amateur sport or game if no part of the income or other funds of the society or association is used or available for the pecuniary profit of any proprietor, member or shareholder thereof;101[101]

d. income of any club, society or association, organised and operated exclusively for the social welfare, civic improvement, pleasure or recreation, or for any other purpose.102[102] Although no specific reference is made with respect to the income from foreign sources (funding), the above categories are wide in scope to regard such funding as ‘income’ of the society or association concerned. Additionally, s.18(2)(j) provides for the deduction of any amount of cash donation made to ‘( i) any religious, charitable, benevolent or educational institution approved by the Minister; (ii) any sporting body, club, society or association organised exclusively for the promotion and development of sports or towards assisting any such body or national team to participate overseas; or (iii) assist relief operations undertaken due to natural disasters….’ Note however that the maximum deductible amount is $5’000.103[103] (iv) Sale Tax Act Section 6 of the Sales Tax Act provides a general avenue which can be utilised by NGOs for purposes of exemption. Thus, the Minister may by general notice determine either generally or in any case or class of cases, or any persons entitled to relief from sales tax and any such relief may be made subject to any condition the Minister may impose.104[104] (v) Stamp Duties Act Pursuant to section 3 and Schedule to the Act, any transfer of property to or in trust for any corporation or body of persons associated for religious, charitable or educational purposes, and any instrument for declaring or defining the trust or for appointing new trustees in respect of such

99[99] para.4

100[100] para.10 101[101] para.22 102[102] para.25

103[103] Income Tax (Amendment) Act 1995, s.3 104[104] s.6

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property shall be exempted from tax impositions.105[105] Note further that all instruments made under the Cooperative Societies Act are also exempted.106[106] 4. CONCLUSIONS Whilst the foregoing demonstrates an environment which is characteristic of an ‘open-access’ system for NGOs to get established, there are undeniably loopholes still existing in relation to inter alia their operations. Below are some brief observations of the current situation. Firstly, the legal framework has in general fallen short or in the most, lacking in terms of putting in place some mechanism that ensures and guarantees an adequate level of transparency and accountability within the NGO sector. Put it simply, public scrutiny of NGO affairs, financial or otherwise, is not fully guaranteed within the current legal framework. For instance, the auditing of accounts of a public-benefit organisation alone does not necessarily yield any good relationship between the same and the public if the latter is denied access to such accounts and records. Worse still, NGOs, in particular, those well funded by overseas donors, are currently not subject to any mandatory requirements to have their statement of accounts published or accessible to the public in the interest of transparency. In all these situations, the Government is a bystander for want of jurisdiction to intervene in the interest of the public. Secondly, given most NGOs are well-funded through overseas donors - thus having the capacity to undertake major projects – there is present a general perception that the Government is sidestepped in most development issues. As a result, the development goals of NGOs, which are targeted towards achieving their own constituent objects, do not always conform to Government development policies, both short and long term. This speaks well of the fact that there is little coordination between the two parties due to the absence of any legal or regulatory framework setting out the jurisdictional or administrative aspects of the working relationship between the same. As can be observed, partnership arrangements to date have been carried out on an ad hoc basis and mostly sporadic. This partnership between NGOs and the Government is vital for the country, thus, needs to be secure. The alternative therefore is to have a regulatory organ that facilitates the working relationship between NGOs and the Government. Unfortunately, this does not exist within the Government bureaucracy, let alone the department107[107] which should have played a regulatory role over NGOs. Given this situation, there needs to be an organ - preferably a statutory body - that should be empowered with supervisory, regulatory, auditing, enforcement and other such powers necessary for ‘managing’ the NGO sector. A rationale is to centralise all these functions whilst simultaneously addressing the current chaotic situation of ‘overlaps’ and ‘piecemeal approaches’ in different statutes.

105[105] Para. (a) (Exemptions), Sched. to the Stamp Duties Act

106[106] Para.(b), above. 107[107] As referring to the Ministry of Home Affairs which, by policy, is supposed to exercise

functions having direct implications for the NGO sector. There is recent indication to have a dedicated

officer or division dealing with NGO issues. However, it remains to be seen how and when this will be

implemented.

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Thirdly, whilst the current tax regime in relation to NGOs focuses more on the recipient organisation, it fails to acknowledge through specific provisions the donor or ‘good-Samaritan’. In other words, there is little incentive offered within the tax regime that will render voluntary donations for charitable and related purposes an attractive investment. Whilst assessing the taxable income of a tax-payer, the Income Tax Act, for instance, does not provide for deduction (of equal value) for a tax-payer who has specifically made a generous donation in money or in kind to a charitable, religious, benevolent, educational, or other approved institution. This operates to the effect of creating a disincentive for donation of much-needed funds by individual citizens and resident companies. Finally, whilst the NGO sector is allowed to flourish, there is an inherent risk of abuse of the privileges enjoyed by these organisations. Such risk is further aggravated by a legal and regulatory environment which is too flexible, coupled with the lack of effective monitoring mechanisms. One such potential risk against which there is still absence of effective monitoring mechanisms to deter, is the infiltrating tentacles of overseas criminal syndicates. Lack of legal provisions to effectively monitor and identify the source of overseas donations to NGOs in the country may create an opportunity for international criminal organisations to exploit the situation under the pretext of charity. This can potentially happen, for instance, for purposes of tax evasion in the countries from which such funds are transferred.