Mr. Aslan Ismaylov, an Azerbaijan attorney, has brought to ICNL’s attention possible irregularities in the registration process of the Azerbaijan Bar Association (ABA). Mr. Ismaylov’s account illustrates the potential of state bureaucratic bodies to stifle the freedom of association of individuals or organizations that have fallen out of favor with the government. The ABA’s experiences underscore the need for governments to fully reflect international best practice in their oversight of nongovernmental organizations (For a discussion of best practice concerning registration of not-for-profit organizations see Guidelines for Laws Affecting Civic Organizations, prepared by ICNL for the Open Society Institute, §3.2^*). ICNL hopes to include an article by Mr. Ismaylov detailing the situation in Azerbaijan in the next issue of IJNL.

Kazakhstan Tax Changes Effective of January 1^st, 2000

At the present time, tax benefits in Kazakhstan is regulated by; (1) the Presidential Decree on Taxes and Other Obligatory Payments to the Budget (April 24, 1995)[i]; (2) applicable resolutions of the government; and (3) separate international agreements[ii]. The Presidential Decree (hereinafter the Decree), having the force of law and approved by the Parliament, is the de facto Tax Code of Kazakhstan.

The government of Kazakhstan has adopted a series of changes to the Decree which unequivocally clarify the status of gratuitous transfers ("grants") from international NGOs to indigenous NGOs. The following amendments were added to the Tax Code of the Republic of Kazakhstan on December 10, 1999:

Article 5, point 8:

“grant — property provided on a charge-free basis by States, governments of states, state-owned, international and public organizations and physical persons to the Republic of Kazakhstan, Government of the Republic of Kazakhstan, legal entities (including to non-residents), their affiliates, representations and other separate structural subdivisions as well as physical persons for attaining certain objectives (purposes)”;

According to the previous version of the Decree, a grant and other humanitarian and charity aid, were considered to be excluded from income tax.[iii] However, there was no effective definition of grant. The amendment to Article 5 shown above, now further clarifies what a grant is. That is, the new wording leaves no doubt that grants from international donors and grants made pursuant to international agreements are not taxable as income.

This article is furthered applied to those obtaining salary from grant funds. Amended Article 104-7, point 3, subpoint 15, states that the payment of salaries out of grant funds to juridical persons (including NGOs) are exempt from "social tax" (much like social security) as long as the grant money was given

(1) according to inter-governmental agreements, or

(2) grants from international, non-governmental organizations.[iv]

The current rate of social tax for legal persons is 26%. Previously, if a donor gave a grant of $10,000 (US Dollars), salaries paid by the grant would subject the sum to taxation. In this example, if $6,000 went to pay salaries, $1,560 would be deducted from the $10,000 over the course of a year. It was argued that this limited the effectiveness of the grants made by international donors. However, this taxation has been eliminated due to the recent amendments.

These benefits apply not only to local NGOs that receive grant money but it also applies to international NGOs in Kazakhstan. An example would be a USAID grantee such as the ICNL. ICNL receives its funding in accordance with an international agreement between Kazakhstan and the US. This satisfies the requirements of point (1) cited above.

In Kazakhstan, it is customary that the social tax on an employee's salary be paid by the NGO. According to the new changes, ICNL will gain back approximately 26% of what it is paying for social tax on salaries. If ICNL was paying $5,000 a month for salaries, ICNL would save $1300/month under the new changes -- money that can go back into programming activity.

This reduction will not effect an employee's ability to collect the government pension as the government pension is a general fund not relative to one's contribution. Moreover, the government pension is very low. Please note that there will still be the mandatory 10% tax that goes to private pension funds. This is considered to be the real security for future pensioners. That tax is relative to one's contribution

Also, according to Article 57, point 24, NGOs operating on grants made by international donors are also given a preferential VAT rating.

Article 57. Turnover (sales) not liable for value added tax

1. Turnover relating to the sale of the following goods (works and services) shall be exempt from VAT:

24) turnover (sales) relating to disposal of goods (works and services) carried out at the expenses of grants given along the line of states, governments of states and international organizations;

The addition to the Decree relieves grant money from VAT on the selling end (as opposed to the purchasing transfer). Another VAT preference is set forth in Article 57. The import of the goods which are executed at the expense of the grants that were obtained along the lines of (from) intergovernmental agreements, governments of foreign states and international organizations is released from the value added tax.[v]

These benefits enumerated above definitely improve the economic viability of the sector. Moreover, they may encourage organizations that maintain "separate books" to now pay their legitimate share of taxes. This, in turn, may bring more credibility to the NGO sector and bring more revenue to Kazakhstani society.

FOOTNOTES:

[i] This decree has the force of law under the Kazakhstan system.

[ii] In particular, bilateral agreements as between Kazakhstan and foreign countries such as the United States.

[iii] Article 34, section 5 (3).

[iv] Article 104-7. Taxable Base:

Legal persons do not pay social tax in the following cases:

15) out of grant funds given on the basis of intergovernmental agreements and given by international non-governmental organizations.”

[v] Article 57, section 24.

Legislative Update

A new Tax Code and potential Law on the Registration of Legal Entities are currently in the works in Turkmenistan. ICNL provided comments and suggestions to the draft Law on Registration of Legal Entities. This draft is being proposed by the State Agency on Foreign Investment. The draft law does not cover non-entrepreneurial organizations although it presumably should since it refers to a public register of legal entities and non-entrepreneurial organizations are legal entities. However doubtful, the Majilis (Parliament) expects to address this draft before 2000.

The Tax Code is being proposed by various government ministries including the Ministry of Finance. The outcome of this initiative is unclear and will not be know until after 2000.

On Tuesday, November 23rd, 1999, the President accepted/signed the new law "On Joint Stock Companies". Versions of the law may be available through USAID sponsored, Booz-Allen Consulting in Turkmenistan. Contact: Brian O'Shea at boshea@cat.glasnet.ru

The International Planned Parenthood Foundation held a seminar on the need for an NGO law in Ashgabad during the last week of November, 1999. The seminar focused on the NGO law checklist (available through ICNL) and critiqued the Turkmenistan NGO legislation namely the law "On Public Associations". The seminar also highlighted the new Civil Code (March 1, 1999) and its provisions regulating NGO registration. These little known provisions improve registration mechanisms and procedures for NGOs but have not been actively implemented by the government (namely the Ministry of Justice).

Additional information available through Richard Remias, Regional Director Central Asia, ICNL, Almaty, Kazakhstan
rremias@cpart.alma-ata.su

The Law on Humanitarian Aid was adopted on October 22, effective January 1, 2000. Its adoption was a logical regulatory step in clarifying the order and distribution of humanitarian aid in the Ukraine.

This law did not appear in a vacuum. Before the enactment of the new law, humanitarian aid was regulated in the Ukraine under Presidential Decree # 738/98 dd. July 4, 1998 “On Humanitarian Aid which is Arriving to Ukraine,” and the Decree of the Cabinet of Ministers of the Ukraine # 745 dd. May 25, 1998, which approved the “Regulation on the Commission with the Cabinet of Ministers On the Issues of Coordination, Receiving, Transportation, Protection, and Distribution of the Humanitarian Aid which is Arriving from the Foreign Countries.” Before these decrees, a regulation promulgated by the Ukrainian Cabinet of Ministers dd. July 24, 1993, “On Straightening Receiving and Distribution of Humanitarian Aid,” first comprehensively addressed the issues surrounding the distribution of humanitarian aid.

Each new legislative act has provided increased regulation of the receipt and distribution of humanitarian aid, and further expanded the state’s control. Because humanitarian aid is tax exempt, not subject to customs duty, and in some cases even freed from the excise tax, the government naturally seeks to exercise some degree of control.

The new Law on Humanitarian Aid represents an amalgamation of regulations included in all of the previous legislative and regulatory acts. Further, it contains one truly significant innovation- the introduction of the “Unified Register of the Recipients of the Humanitarian Aid.” Together with other innovations, this law will substantially affect procedures for granting and distributing humanitarian aid in the Ukraine.

Enforcing the law from January 1, 2000 is meaningless because most of the technical issues crucial to the implementation of the law will require the enactment of follow-up regulations. Based on previous experience it is unlikely that these regulations, when finally enacted, will be clear and easy to understand and to establish non-bureaucratic procedures.

Below is the list of the most important issues addressed in the Law on Humanitarian Aid, which shall be implemented through follow-up regulations:

1) To obtain the status of a recipient of humanitarian aid an organization must be included into the “Unified Register of Recipients of the Humanitarian Aid.” The law does not establish registration procedures for including legal entities into the register. The Cabinet of Ministers must adopt a regulation for the Unified Register of Recipients of Humanitarian Aid. (part 1 and part 5 of article 1)

2) The procedure for establishing and operating the Committee of the Cabinet of Ministers on the Issues of Humanitarian Aid as well as the appropriate committees in the Autonomous Republic of Crimea. In addition, Kiev and Sevastopol must also be established by a Decree of the Cabinet of Ministers. (part 5, article 4)

3) The procedure for receiving and utilizing humanitarian aid in a foreign currency must be regulated by a Decree from the Cabinet of Ministers and the National Bank of the Ukraine. (part 6, article 7)

4) The Cabinet of Ministers must establish sanitation, veterinary, and ecological regulations. (part 2, article 9)

5) The Cabinet of Ministers shall establish procedures for importing into the territory of the Ukraine and procedures for destroying deficient or unsafe humanitarian aid in the Ukraine. (part 4, article 9)

6) The Cabinet of Ministers shall establish the liability of government officials for exercising their authority and for adoption of appropriate customs registration for humanitarian aid. (part 6, article 9)

7) Procedures are included for providing humanitarian aid by the Ukraine. (part 3, article 10)

8) The Ukrainian Ministry of Finance must establish bookkeeping procedures to account for any humanitarian aid received. (part 4, article 11)

9) The Cabinet of Ministers must define procedures for writing-off assets from humanitarian aid that has expired. (part 6, article 14)

10) The Cabinet of Ministers must, either quarterly or annually, establish limits on categories of goods that may be imported into the Ukraine as humanitarian aid. (part 1, article 14)

11) The Cabinet of Ministers must establish the maximum quantities of humanitarian aid that may be lawfully obtained by a recipient. (part 2, article 14)

Consequently, donors and recipients of humanitarian aid will face the basic problem that the law cannot yet be implemented, notwithstanding the effective date of its enactment. Article 15 of the Law establishes the only assignment between the old commissions on the issues of coordination, reception, transportation, protection, and distribution of humanitarian aid and the new commissions on the issues of humanitarian aid. Despite the law’s silence on the issue, we assume that the legislative acts which regulated the old commissions on the issues of coordination, reception, transportation, protection and distribution of humanitarian aid remain in force pending adoption of implementing regulations for the new law.

It is currently unclear who can be a recipient of humanitarian aid. Before the enactment of the new law, it was not necessary to register with the “Unified Register of Recipients of Humanitarian Aid”. It may be that no organization will be present at the customs border to receive the cargo with humanitarian aid since no regulation exists governing registration as a recipient of humanitarian aid.

It is also unclear how to make sure that governmental authorities recognize the aid as “humanitarian.” It is not clear in article 3 to whom shall the donor apply and to whom the recipient should address its written acceptance of the aid. We can interpret provisions of article 3 so that such the exchange of letters between the potential donor and the potential recipient shall be presented to the relevant commission. However, because the law is not clear, these issues require additional legal interpretation.

The Law on Humanitarian Aid is of great public importance because it strongly affects not only the NGO sector but also the most vulnerable and least protected part of the Ukrainian population. However, the Ukrainian Government never brought this legislation into public discussion. This disclosure would have simplified the task of clarifying the text of the law, rather than now seeking to affect dozens of ministerial regulations under the most secretive drafting processes. Nevertheless, the NGO community must initiate efforts to prepare and propose to the government follow-up regulations and amendments to the law, in order to assure the most straightforward and efficient implementation of the new law.

For more information please contact Anatolij Tkachuk, the ICNL representative in WestNIS, via e-mail at csi@ukrpack.net or tel/fax in Kiev at (380-44)2690732

New Law in Uzbekistan: Law on Non-governmental, Non-commercial Organizations

In April 1999, Uzbekistan adopted the new law regulating non-governmental, non-commercial organizations (commonly referred to as NGOs). The new Law on Non-governmental, Non-commercial Organizations (Law on NGOs) will apply to legal entities established on a voluntary basis that do not pursue economic gain as the main purpose, and do not distribute profit among members of the organization.

Previously, the main piece of legislation regulating non-commercial entities was the 1991 Law on Public Associations. This law, in combination with other rules and acts, created a restrictive environment for NGOs and even deterred NGOs from obtaining official registration. From over-regulation to geographical limitations on the activities of NGOs, this law failed to recognize contemporary norms of NGO legislation.

The new law comes after three years of consistent effort by government officials, local NGOs and international organizations. The broad-based interest in NGO legislation stems from the realization that NGOs play an increasingly important role in the overall development of a given country. NGOs are generally volunteer organizations that, because of the donated time, money and their specific interest, more effectively contribute to social causes.

As such, the government of Uzbekistan has been encouraged by various international organizations and local NGOs to improve the legal and regulatory environment for NGOs. As result of the combined interest, President Karimov called for NGO reform last fall in his address to the nation. Thereafter, an official working group was formed to draft new NGO legislation.

Many international organizations, such as USAID, Counterpart Consortium, OSCE, UNDP and the International Center for Not-for-Profit Law (ICNL) provided technical assistance to this goal.

After an intense campaign consisting of debate, discussion and drafting, an initial draft was prepared and introduced into the December session of Parliament. After a commenting period, the Olyi Majilis passed the bill on April 15^th and soon thereafter, President Islam Karimov signed the bill into law.

The new law brings many positive changes to the acting legislation. It allows individuals to establish new types of non-commercial organizations such as foundations and institutions. Under the new law, not only citizens of Uzbekistan, but also foreigners and persons without citizenship are allowed to found NGOs. In addition, legal entities as well as physical persons can be founders of NGOs. These changes, among others, bring Uzbekistan legislation closer to international norms.

The new law potentially establishes simple registration procedures for foundations and institutions (note: subsequent legislation or acts are still needed to implement the positive provisions of the new law). One such change is a decrease in the amount of documentation and information required for registration. Under the former process, the need for numerous documents and detailed information often led to delays in the registration process.

The law generally simplifies reporting requirements. There is no longer any need to file periodic activities’ reports to registration authorities. According to the new law, NGOs are only required to allow the open access to the information regarding the use of the NGO's property and its financial means. In this regard, the law may also have a positive impact on public trust and awareness of NGO activity. The public will additionally have access to information on NGO registration in the Public Register of Legal Entities.

However, many important issues are still unresolved in the new law. One such issue is the undefined authority of government bodies supervising NGOs. This lack of definition may allow government authorities to arbitrarily interfere into NGOs activities. Another issue is the broad list of reasons to deny registration, as well as unclear procedure how to appeal such denial to a court of law. Furthermore, the new law still contains requirements for NGOs to register based on the territory of their activities, which requires re-registration every time an NGO expands its activities.

It is more difficult to substantially improve the regulatory environment for NGOs since the soviet-styled Law on Public Associations continues to exist. Even after enactment of the new Law on NGOs, the former 1991 law has not lost its force. In this respect it will be necessary to introduce the required amendments in accordance with the superceding Law on NGOs. In addition, if the government requires the re-registration of NGOs based on the adoption of the new law, this will cause damage to the fragile NGO sector.

Most commentators agree that the adoption of the new law can have both positive as well as negative effects. It will depend on the implementation of the law by the government authorities. As was stated previously, subsequent implementing regulations will be formed in the upcoming months. It remains to be seen in the next steps whether government and NGOs will continue to work together to fill in the blanks and complete the task of improving the legal and regulatory environment.

Richard Remias is the Regional Director of the International Center for Not-for-Profit Law in Central Asia (ICNL). ICNL's activity in Central Asia is funded by the United States Agency for International Development. The opinions herein are those of the author(s) and do not necessarily reflect the views of the U.S. Agency for International development.