Restrictions on Foreign Funding of Civil Society

Sri Lanka

The International Journal
of Not-for-Profit Law

Volume 12, Issue 3, May 2010

Rohan Edrisinha2

The political and legal environment in which civil society organizations function in Sri Lanka has become increasingly difficult in recent years. Today there is a strong likelihood that legislation will be introduced to facilitate greater governmental control of nongovernmental organizations through various means, including tighter control of the receipt of foreign funding. Influential bodies within successive governments have routinely threatened the introduction of laws and regulations restricting foreign funding available to NGOs. The political narrative of Sri Lanka, however, at present suggests that the restrictions spring from political rather than economic motivations.


NGOs generally seek legal incorporation through one of five laws or mechanisms:

  1. Registration under the Societies Ordinance of 1891;
  2. Registration under the Companies Act 2007;
  3. Registration under the Cooperative Societies Act of 1992;
  4. Registration under the Voluntary Social Service Organisations Act of 1980; or
  5. Legal incorporation by an Act of Parliament sponsored by a Member of Parliament through the mechanism of a Private Members Bill.

Most of these laws and mechanisms set forth requirements and conditions that are binding on NGOs acquiring legal status under them. These include requirements relating to funding, the management and auditing of financial receipts, etc. This is an important point that is often ignored by advocates of greater regulation or control of NGOs—that there are regulatory procedures and mechanisms already in place. Before further restrictions are imposed to regulate NGOs, reasons should be adduced as to why the prevailing legal regime governing NGOs is found to be inadequate. One needs to consider the option that perhaps the existing laws could be amended to overcome deficiencies, if any.


As stated above, recent attempts to intimidate and control NGOs are motivated by a complex political context that is created by a variety of factors. These include a growing authoritarianism in general, the tsunami of December 2004, the insecurities of the majority community, and since 2005-2006, the election of a Government that essentially adopted a militaristic response to the island’s civil war.

  1. AuthoritarianismSince the early 1990s authoritarian political regimes have attempted to intimidate and harass prominent NGOs that were perceived to pose threats to incumbent Presidents and regimes. In 1990, for example, President Ranasinghe Premadasa appointed a Presidential Commission to investigate alleged malpractice, fraud and proselytism. It was widely accepted that the main motivation for the appointment of the Commission was Premadasa’s fear of the political aspirations of the Sarvodaya Movement and its well-known leader, A. T. Ariyaratne. Since 2005, there have been several initiatives to intimidate NGOs engaged in human rights and conflict resolution-related activities that have challenged governmental policies.
  2. The Tsunami of 2004The tsunami and the massive influx of foreign assistance that was often channeled through international NGOs (INGOs) and local NGOs generated a greater sensitivity to the use and accountability of foreign funds. While some of these concerns were legitimate and raised valid questions as to the effective and responsible management of resources, the political groups that were hostile to NGOs for ideological reasons and reasons of self-interest exploited many of these apprehensions to further their ongoing concern to restrict the freedom of association of NGOs. The arrival of many groups with religious affiliations and the donation of funds by religious organizations from the West provided further ammunition to the argument that such funds were being used for “unethical conversions,” particularly of Buddhists and Hindus.
  3. The Insecurities of the Majority CommunityA combination of factors – including ethnic conflict, the military success of the Liberation Tigers of Tamil Eelam (LTTE) resulting in their de facto control of parts of the northern and eastern provinces of the island, attempts by the Governments of Sri Lanka between 2000 and 2006 to reach a negotiated political settlement with international facilitation, and the growing internationalization of the island’s ethnic conflict – generated insecurity and a defensive reaction on the part of the island’s majority community, which is largely Sinhalese and Buddhist. This group, often referred to as a majority with a minority complex, began to view NGOs – which often depended on foreign funding for their activities – as agents of Western countries and entities that had their own political and ideological agendas that were viewed as hostile to indigenous values and the interests of the majority community.
  4. The Presidential Election 2005The election of Mahinda Rajapakse to the office of President in November 2005 marked a significant shift in the government’s policy to the ethnic conflict, the LTTE, and the role of the international community. President Rajapakse depended on two small political parties for his electoral victory: the Janatha Vimukthi Peramna (JVP) and the Jathika Hela Urumaya (JHU). These two parties had a disproportionate influence on and access to the new President. This, together with a growing frustration with what was seen as a maximalist and intransigent LTTE on the part of many Sri Lankans and members of the international community, enabled the Rajapakse government to adopt a more hawkish and militarist response to the LTTE. The Government intensified the war effort employing strong military offensives that often violated international humanitarian legal norms, leading to bloody conflict and large-scale loss of lives. Finally, in May 2009, the Government defeated the LTTE and brought the whole country under its effective control.The political factors outlined above all contributed to a significant shift in the attitude of the government to NGOs and their freedom and autonomy. NGOs that had been at the forefront of campaigns for constitutional reform, conflict resolution through negotiation and political accommodation, media freedom, and human rights, by and large, worked closely with the Kumaratunga Administrations from 1994 to 2005.  Though there were strains at various times, there was mutual self-interest and a similarity of broad goals on the part of government and such NGOs. The election of the Rajapakse Administration, with the presence of the two small ultra-nationalist parties, created a sharp divide between the government and the groups of NGOs described above.


Despite the relatively positive relations that existed between NGOs and civil society groups on the one hand, and the government on the other, various legislative and regulatory changes were introduced during this period that weakened the freedom and autonomy of NGOs.

  1. Introduction of the Voluntary Social Service Organisations (Amendment) Bill 1998.This Amendment Bill was introduced to the Voluntary Social Services Act (VSSA) of 1980 in extraordinary circumstances. Civil society groups lobbied successfully against the Amendment and received assurances from the Minister of Social Services that it would not be enacted. However, the Amendment remained on the Order Paper of Parliament. On a chaotic day when the Opposition had walked out of Parliament, the Government enacted all the Bills listed on the Order Paper, including the VSSA Amendment Bill. The Bill provided that where a Board of Inquiry appointed by the Minister reports that “there is evidence to support an allegation of fraud or misappropriation against a voluntary association,” the Minister may appoint an interim board of management in place of the existing board of directors of the association. The Centre for Policy Alternatives and several civil society activists challenged the constitutionality of the Amendment on the grounds that it violated the freedom of association. But the legal challenge was dismissed at a preliminary stage on the basis that the Sri Lankan Constitution prohibited judicial review of legislation.
  2. Introduction of Registration and Supervisory RequirementsVarious regulations were promulgated in 1999, including a series through Gazette Notification No. 1101/14 of 15 October 1999, in which various requirements with respect to financial management and administration of NGOs registered under the Voluntary Services Act were introduced. There was uncertainty as to whether these regulations applied to all NGOs, including those not registered with the NGO Secretariat under the Voluntary Social Service Organisations Act. Since the Act refers to NGOs as those associations engaged primarily in social service activities, many NGOs engaged in research and advocacy work on issues such as governance and human rights took the view that these new requirements did not necessarily apply to them.Soon after the tsunami of December 2004, various additional regulations were introduced as a prerequisite for registration with the NGO Secretariat. There were requirements that a local NGO must have a minimum of Rs 10 million while an INGO should have a minimum of US $1 million. After approval by the Secretariat, the application is forwarded to the Ministries of Defence and Finance for final approval.  At the implementation stage too, various government officers in the districts exercise coordination with and supervisory functions over NGOs engaged in activities that are primarily socioeconomic in nature.
  3. Introduction of Tax on Foreign Funding Received by NGOsOne of the proposals in the Appropriation Bill or Budget for 2005 was the introduction of a tax on foreign funding received by certain NGOs.  The Inland Revenue (Amendment) Act of 2005 provided that 3% of the aggregate amount that was received by an NGO would be deemed the profit and income subject to tax. Here too the definition of NGO in the Act indicated that the provisions of the Act would apply to NGOs in the socioeconomic sector. An additional controversial feature of the new law was that it gave the Minister of Finance the power to enable the Commissioner General of Inland Revenue to reduce or remove entirely such tax in certain circumstances.The justification offered by the Government for the introduction of the tax was confused. An official from the Inland Revenue Department who was interviewed stated that the justification was the need to regulate NGOs and the concern with inadequate regulation of NGOs.


  1. Continuation of Tax on Foreign Funding.The Inland Revenue Act, 2006 (as amended in 2007 and 2008) basically continued the policy of taxation described above.
  2. Appointment of a Select Committee of Parliament to Investigate NGOsA motion was made by Nandana Gunatileke, a JVP MP, in August 2005 to appoint a Select Committee of Parliament to investigate the financial management and accountability of NGOs that received foreign funding, and the impact of NGO activities on the sovereignty and the territorial integrity of the country. The committee was appointed on 17 January 2006 under the chairmanship of Mr. Gunatileke.Though the number of members on the Committee was increased from 19 to 26, it was clear that the representatives of the mainstream political parties were not very interested in the Committee’s proceedings. The leadership and initiative came from the JVP and the JHU – the Sinhalese Nationalist parties that wielded considerable influence in the new Rajapakse Government. The Committee focused its attention on a few NGOs that had played an active role in supporting the Norwegian facilitated peace process that took place between 2000 and 2005. Apart from requiring these and other NGOs to furnish the Committee with large volumes of materials, including records, organizational details, accounts, reports, publications, and details about staff, some organizations were summoned before the Committee and questioned, often in the presence of media personnel sympathetic to the politicians providing leadership to the Committee.One of the striking features of the report of the select Committee was that it seemed to lack appreciation of the scope of freedom of association and speech and expression in a democratic society. The Committee was critical of NGOs that advocated federalism on the basis that the President had been elected in November 2005 on a platform that promised to preserve the unitary character of the Constitution, and that the NGOs were acting in a manner “contradictory to the mandate given by the people of the country.” Furthermore, many NGOs working in conflict affected areas were censured for engaging in activities prejudicial to national security.

    The Committee proposed a comprehensive new legal framework for the regulation and supervision of NGOs and the repeal of most of the existing legislation. It proposed the establishment of a NGO Commission to monitor and supervise NGOs. The Committee also proposed restrictions on the grant of visas to foreign staff, the creation of a National NGO Fund to assist NGOs that render a service to society, created inter alia, by receipts from a percentage of funds received by NGOs.

    A Draft Bill on NGOs has been prepared. As is the practice in Sri Lanka, this draft is not accessible to the public. The Bill has been prepared with little or no discussion with relevant stakeholders and therefore it is not clear how many of the Select Committee’s recommendations have been incorporated.

  3. A Sustained Attack on NGOs in State MediaThe appointment of the Select Committee of Parliament to investigate NGOs was accompanied by a sustained and aggressive series of attacks on prominent NGOs and their leadership. The Sinhalese nationalist leaders who were influential in the Rajapakse Government led the attacks which received widespread publicity in the state media and elements of the private media that were sympathetic to the Sinhalese Nationalist position.The NGOs working in the areas of governance, human rights, and conflict resolution were the main targets. The main criticisms leveled against them were that they were engaging in activities prejudicial to the sovereignty and territorial integrity of the country; promoting a pro-Western, Judeo-Christian, and hence alien agenda; supporting Tamil separatism; and acting as traitors by making it difficult for the government to wage an effective war against terrorism. NGOs and their leaders were accused of being traitors if they advocated federalism or a negotiated settlement to the ethnic conflict or respect for international humanitarian law and human rights.


The challenges faced by NGOs with respect to their freedom and autonomy are more political than legal or regulatory. While the existing legal and regulatory regime has become more repressive in recent years, restrictions have been directed primarily at NGOs engaged in developmental work with a socioeconomic focus. Loopholes in the law such as the definition of NGOs have enabled NGOs in the areas of human rights, governance, and conflict resolution to operate reasonably freely. The threats that these organizations have faced in recent years have been of an extra-legal nature. This dangerous development, coupled with the decline of the rule of law in the country, has made this period a particularly difficult one for these NGOs as well.

What promises to be a comprehensive Bill which deals with NGO regulation and which consolidates and “improves” the existing law seems to be in an advanced stage of preparation and could be presented in Parliament soon. It may be possible to challenge the Bill on the grounds of incompatibility with fundamental rights and freedoms. However, the politicization of the judiciary in recent years and its conservative approach to constitutional interpretation and deference to the legislature suggest that one cannot have too much confidence in the Constitutional Court (Supreme Court) of the country.

While there needs to be a robust defense of the freedom of association of NGOs in the political and legal arenas, there must also be a campaign to challenge the governmental discourse on sovereignty, which is essentially a statist as opposed to a people-based discourse; and a reaffirmation of the universalist and international dimensions of human rights and constitutionalism while also relating such concepts to local culture, religion, and history. NGOs should also demonstrate willingness to have reasonable and effective regulation that promotes accountability, transparency, and responsibility while preserving autonomy, which is not easy to achieve in a society that has become increasingly politicized as a result of the decline in independent institutions. Recent political trends suggest that the campaign to discredit and control NGOs will intensify both through legal and extra-legal means.


1 This paper is made possible with the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of the authors and do not necessarily reflect the views of USAID or the United States Government.

2 Faculty of Law, University of Colombo.