CC BY
14Hill
Rustam Abdullaev,
Lecturer of Tashkent State University of Law
LEGAL REGULATION AND FINANCIAL BASES OF NON-PROFIT ORGANIZATIONS OF UZBEKISTAN
Abstract: This paper provides general overview of non-profit sector of Uzbekistan, detailed information about legal regulation of non-profit organizations (overview of legal regime of nonprofit sector, organizational-legal forms of non-state non-profit organizations, establishment issues), analyses financial bases and taxation of non-profit organizations as well as gaps and challenges existing in the non-profit sector of Uzbekistan. In conclusion of this paper, there are given certain recommendations for the improvement of non-profit sector of Uzbekistan
Key words: non-profit sector of Uzbekistan, legal regulation of non-profit organizations, financial bases and taxation of non-profit organizations, gaps and challenges in a non-profit sector.
Рустам Абдуллаев,
Преподаватель Ташкентского государственного юридического университета
НЕКОММЕРЧЕСКИЙ СЕКТОР УЗБЕКИСТАНА. НЕДОСТАТКИ И ВЫЗОВЫ.
Аннотация: в данной статье представлен общий обзор некоммерческого сектора Узбекистана, подробная информация о правовом регулировании негосударственных некоммерческих организаций (обзор правового режима некоммерческого сектора, организационно-правовые формы негосударственных некоммерческих организаций, вопросы учреждения), анализ финансовых основ и налогообложения некоммерческих организаций, а также недостатки и вызовы, существующие в некоммерческом секторе Узбекистана. В заключительной части данной статьи представлены определенные рекомендации по совершенствованию некоммерческого сектора Узбекистана.
Ключевые слова: некоммерческий сектор Узбекистана, правовое регулирование некоммерческих организаций, финансовые основы и налогообложение некоммерческих организаций, недостатки и вызовы в некоммерческом секторе.
Рустам Абдуллаев,
Тошкент давлат юридик университети укитувчиси
УЗБЕКИСТОННИНГ НОТИЖОРАТ СЕКТОРИ. КАМЧИЛИК ВА МУАММОЛАР
Review of law sciences
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Аннотация: ушбу мацолада Узбекистон Республикасининг нотижорат сектори %ацида умумий маълумот, нодавлат нотижорат ташкилотлари фаолиятининг %уцуций тартибга солиниши буйича батафсил маълумотлар (нодавлат нотижорат ташкилоти фаолиятининг %уцуций режими, нодавлат нотижорат ташкилотларининг %уцуций шакллари, ташкил этиш масалалари), нодавлат нотижорат ташкилотларининг молиявий асослари та%лили ва солицца тортиш масалалари, шунингдек со%ада мавжуд булган камчилик ва муаммолар ёритиб берилган. Ушбу мацоланинг якуний цисмида Узбекистоннинг нотижорат секторини такомиллаштириш буйича муайян тавсиялар берилган.
Калит сузлар: Узбекистоннинг нотижорат сектори, нотижорат ташкилотларни %уцуций тартибга солиш, нотижорат ташкилотларнинг молиявий асослари ва солицца тортилиши, нотижорат со%адаги камчилик ва муаммолар.
1. Overview of non-profit sector of Uzbekistan.
General overview of non-profit sector
Currently, in the Republic of Uzbekistan registered more than 10 thousand non-state nonprofit organizations (NPOs) that operate in various fields and make a significant contribution to the development of society and state. During the years of independence a strong legislative base was established in the country, which regulates the matters of the establishment, activity, financing and state support of non-state non-profit organizations. These laws are: the Law "On associations in the Republic of Uzbekistan" (1991), the Law "On the non-state non-profit organizations" (1999), the Law on "Public foundations" (2003), the Law "On charity" (2007), the Law "On guarantees of the activities of non-state non-profit organizations" (2007), the Law "On ecological control" (2013); the Law "On social partnership" (2014) and others.
Regarding the definition of "non-state non-profit organization" under the legislation of Uzbekistan, in the accordance with the Article 2 of the Law "On the non-state non-profit organizations" (1999) "non-state non-profit organization is a self-governing organization voluntarily established by physical and (or) legal entities which doesn't pursue making a profit as a main purpose of its activity and doesn't distribute profit among its participants (members)". According to the provision of the same Article of the Law non-state non-profit organization is established for the protection of rights and legal interests of physical and legal entities, other democratic values, achievement of social, cultural and educational purposes, satisfaction of spiritual and other non-material needs, conducting of charitable activity and for the other socially beneficial purposes.
The number of non-state non-profit organizations in Uzbekistan is growing year by year. For example, in 1991 the number of non-state non-profit organizations in Uzbekistan was only 95, in 2010 - 5431 [1], in 2017 - 9235 [2] (as for January 1, 2018) and currently there are more than 10 thousand non-state non-profit organizations, operating in Uzbekistan. According to the statistical analysis of the Independent institute on monitoring the formation of civil society, as for January 1, 2016 the largest share is composed of organizations which support the development of entrepreneurship and farming (22.1%); organizations, developing democratic institutions compose 17%; sports - 13%, youth organizations - 7.6% and those which represent rights and interests of persons with disabilities compose 7%. [3]
Non-profit sector of the country is growing year by year not only in terms of their number, but also in terms of their contribution to the socio-economic development of the country by
implementing socially significant projects and active participation in drafting and implementation of state programs on socio-economic development. In particular, if in 2014 27 republican and more than 370 regional non-state non-profit organizations participated in the implementation of state programs, in 2015 these numbers increased up to 36 republican and 576 regional non-state non-profit organizations. Together with this, the number of state grant recipients is growing year by year as well. Due to their contribution to socio-economic development of the country non-state non-profit organizations are getting more and more public recognition and appreciation. Therefore, during 2010-2015 by the Decree of the President of Uzbekistan 243 representatives of non-state non-profit organizations received state awards. [4] These numbers really prove significant role of non-state non-profit organizations in socioeconomic life of the country and importance of the further development of the sector.
Together with this, consolidation of non-state non-profit organizations plays an important role in the development of civil society in the country. There are certain non-state non-profit organizations which consolidate activity of the others, provide them with informational, methodological, material, technical and legal support. As an example of such organizations it can be pointed out the National Association of non-state non-profit organizations of Uzbekistan, Women's Committee of Uzbekistan, Federation of trade unions, Republican international cultural centre and others [5].
Funding of non-profit organizations
The state financial support plays a significant role in providing the financial sustainability of non-state non-profit organizations. Particularly, the state actively supports non-state non-profit organizations by providing them with state grants, subsidies and social orders for implementation of socially significant projects.
Particularly, according to the statistical data of the Public Fund for support of non-state nonprofit organizations and other civil society institutions under the Oliy Majlis (parliament) of the Republic of Uzbekistan (the fund, through which financial resources are allocated) 248 non-state non-profit organizations obtained state grants and 9 non-state non-profit organizations were given state social orders for the implementation of socially significant projects in 2017 [6]. Thus, the number of non-state non-profit organizations which obtained state grants and state social orders comprises 2.78% of the total number of non-state non-profit organizations, operating in the country. Besides of it, the state actively supports non-state non-profit organizations with subsidies. For example, in 2015 3 billion 250 million soums [7] were allocated as subsidies from national budget to support activity of non-state non-profit organizations. The number of state financial support recipients is growing year by year and an amount of financial resources allocated to nonprofit sector of the country is increasing as well. For example, if in 2015 177 non-state non-profit organizations won in grant competitions and obtained state grants for implementing their socially significant projects, in 2017 this number increased up to 248 [8].
"Another source of funding for NGOs is grants from international and foreign organizations. With the financial support of foreign and international organizations such as OSCE Project Coordinator in Uzbekistan, the Global Fund to Fight AIDS, Tuberculosis and Malaria, UNDP, UNICEF, the Japan International Cooperation Agency (JICA), the US Embassy in the Republic of Uzbekistan and the other, NGOs implemented projects addressed to improve public health service, education, the development of entrepreneurship, handicrafts, agriculture, tourism and environmental protection in the regions in 2014" [9]. However, many non-profit organizations, located in the regions of the country, are not well informed about international, foreign
organizations and their grants. Regional resource centers of the National association of nongovernmental non-profit organizations of Uzbekistan (an organization which "consolidates the organizational and intellectual resources of the NGOs on the implementation of the priority tasks of State and social construction, democratic transition to a free and open, a strong civil society")
[10] inform non-profit organizations mainly about state grants. Together with this, the official website of this organization contains information only about state grant competitions. It is worth to note, that one of the goals of organization is to promote "the development of constructive and mutually beneficial cooperation of NGOs with government bodies, citizens' gatherings, commercial and other public organizations of the country, foreign and international institutions"
[11].
"Membership fees remain the main source of the budget particularly for certain specialized organizations, such as the trade unions and the territorial departments of Commerce and Industry Chamber of Uzbekistan. An example of the support by the businesses to NGOs is "Kamolot" (currently- "Yoshlar Ittifoqi", "Union of youth"), whose budget is financed by small businesses, in compliance with signed agreements on mutual support in the amount of 8% of the amount of the single tax" [12].
2. Legal regulation of non-profit organizations.
Overview of Legal Regime of non-profit sector
The structure of legal regime of non-profit sector in Uzbekistan is the Law "On the non-state non-profit organizations" (1999) as the basic law on non-state non-profit organization, and under this umbrella law there are the laws "On associations in the Republic of Uzbekistan" (1991), "On public foundations" (2003), "On trade unions, their rights and guarantees" (1992), "On political parties" (1996) and "On freedom of conscience and religious organizations" (1991). Peculiarities of establishment, activity, reorganization and liquidation of associations, public foundations, political parties, religious organizations, trade unions are regulated by the abovementioned special laws, whereas if some relations in the sphere of the activity of non-state non-profit organizations are not regulated by special laws, the provisions of the Law "On the non-state non-profit organizations" are applied [13]. Thus, the Law "On the non-state non-profit organizations" is a basic Law for all forms of non-state non-profit organizations. Besides of that, as there is no special law which would regulate the activity of institutions (non-state non-profit organization, established by physical and (or) legal entities for the fulfillment of social, cultural and other functions of non-commercial character [14]), their activity is regulated by the Law "On the nonstate non-profit organizations".
Picture showing legal regulation of NPOs in Uzbekistan
Organizational-legal forms of NPOs, establishment issues
The Law "On the non-state non-profit organizations" (1999) specifies organizational forms which might be taken by non-state non-profit organization. So, according to this Law, non-state non-profit organization can be established in the form of association, public foundation, institution and other forms prescribed by legal acts. Besides of this, non-state non-profit organizations may establish unions in order to coordinate their activity and also for representation and protection of their common interests [15].
According to the Article 15 of the Law non-state non-profit organization is considered to be established from the moment of its state registration. Non-state non-profit organizations are registered by the Ministry of Justice and its regional departments, and registry organ carries out control over the compliance of their activity to the statutory goals and legislation of Uzbekistan [16]. The Law also specifies some requirements to the founders of non-state non-profit organizations as well as to participants (members). In particular, non-state non-profit organization can be established by physical entities who are at least 18 years old and also by legal entities. The common requirements to the age of members is also to be at least 18 years old, while the membership to the youth non-state non-profit organization is allowed from the age of 14, and to the children's non-state non-profit organization - from the age of 10. Foreign citizens and people without citizenship may also be founders or members of non-state non-profit organization with the exception of cases, prescribed by laws and international treaties of Uzbekistan [17].
As it was previously mentioned, non-state non-profit organizations can be established in the form of associations, public foundations, institutions and other forms prescribed by legal acts. The statistical data of the Independent institute on monitoring the formation of civil society shows that the majority of non-state non-profit organizations are established in the form of associations (71%), public foundations compose 6% and institutions - 4%, other forms of non-state non-profit organizations compose 19% (as of January 1, 2016) [18].
Taking into consideration that the organizational form of associations is the most popular in Uzbekistan, it is worthy to give some more information about this kind of NPOs. In particular, the special law, which regulates the activity of associations, namely the Law "On associations in the Republic of Uzbekistan" is completely based and corresponds to the Law "On the non-state nonprofit organizations". In the accordance with the corresponding Article 1 of the Law "On associations in the Republic of Uzbekistan" and Article 11 of the Law "On the non-state non-profit organizations", an association is a voluntary association of citizens established on the basis of their common interests for satisfaction of their spiritual and other non-material needs. However, it doesn't mean that associations serve only for the interests of a specific group of people, mainly their activity covers all people, who are supposed to be a target group. According to the Article 8 of the Law "On associations in the Republic of Uzbekistan" an association is established by the initiative of at least 10 people and associations may conduct their activity in various areas, such as
healthcare of the population, participation in the charitable activity, sports, protection of nature, protection of historical and cultural monuments, realization and protection of human rights and other non-commercial activities, which are not prohibited by legislation.
3. Financial bases and taxation of non-profit organizations
Regarding the financial bases of the activity of non-state non-profit organizations, according to the Article 29 of the Law "On associations in the Republic of Uzbekistan" the following may be sources of the formation of their property: "entrance and membership fees, if they are provided by the charter; one-off and regular contributions from the founders, participants (members); voluntary property contributions and donations; income (profit) derived from entrepreneurial activities, used only for the fulfilment of goals stated in the charter; other sources which are not prohibited by legislation". Financial resources coming from state grants, subsidies, social orders and also from grants of international and foreign organizations can be categorized as other sources of the formation of NPOs' property. Analysis of resources, coming from state grants and social orders, is given above.
As it was previously mentioned "membership fees remain the main source of the budget particularly for certain specialized organizations, such as the trade unions and the territorial departments of Commerce and Industry Chamber of Uzbekistan" [19]. As for the contributions and donations, it can be said that earnings of the majority of people, as practically in any developing country, are not so high to allow them to make financial contributions and donations. Besides of that, majority of people and commercial organizations are not well informed about the activities of NPOs and have limited understanding about the benefits of such kind of organizations. In this connection, it is meaningful to ensure better transparency of NPOs' activities, their activity should be clear for potential donators.
In the accordance with the Article 30 of the Law, "non-state non-profit organization may conduct any kind of activity that is not prohibited by laws and is compatible with the purposes, stated in its constituent documents" (charter, memorandum of association). Besides of that, the Article 31 of the Law specifies that non-state non-profit organization may also conduct entrepreneurial activity within the purposes, stated in its charter, and establish entrepreneurial entities for the fulfillment of its purposes. According to the Article 126 of the Tax code of the Republic of Uzbekistan non-profit organizations are exempted from income tax, however, in case if non-state non-profit organization receives income from entrepreneurial activity it becomes a tax payer in the part of derived income.
4. Gaps and challenges
As it was mentioned above, the number of non-state non-profit organizations which obtained state grants and state social orders comprises 2.78% of the total number of non-state non-profit organizations, operating in the country, whereas the number of NPOs which obtained state grants and state social orders in Khorezm region comprises only 3.8% of the total number of NPOs of this region. Together with this, according to the Independent institute on monitoring the formation of civil society, in 2015 115 non-state non-profit organizations officially stopped their activity (88 of them were liquidated by their own will, according to the decision of their higher organ, whereas 27 of them were liquidated in the court order). Among the main reasons of the liquidation of nonstate non-profit organizations and their insufficient functioning, experts point out a shortage of qualified personnel in the "third sector", as well as insufficient material and technical equipment of organizations [20]. In addition to this, according to the on-line poll, conducted by the Public Fund for support of non-state non-profit organizations and other civil society institutions in the
period of 2013-2014, majority of respondents (40.5%) pointed out the absence of financing as the biggest problem of non-state non-profit organizations [21].
According to the opinion of the Independent institute on monitoring the formation of civil society, which is stated in its annual report on the development of civil society in Uzbekistan for 2015, improvement of financial sustainability of the "third sector" will also be promoted by further expanding of the number of state grant recipients [22]. Of course, by enlarging the number of organizations which receive state grants we can achieve the improvement of financial sustainability of the "third sector" to the certain extent. However, the non-profit sector of the country, as it was mentioned above, is growing year by year, the state budget is not unlimited and it is obvious that it will not be able to meet the needs of all non-state non-profit organizations. On the other hand, it is quite risky to rely only on state financial support, because organization cannot exactly predict whether it will be able to obtain state grant or not, one year state financial support might be available, but the next year it might be not. This can be proved by the experience of nonprofit sector in the USA, where "in 1980s federal programs in many areas were cut back dramatically, the non-profit sector's rapid growth was interrupted, and nonprofit organizations scuttled around to find new sources of support (Salamon, 1995)" [23] Thus, it would be more efficient if non-state non-profit organizations have their own stable financial sources. In this regard, it is necessary to improve NPO legislation and develop new legal mechanisms for the improvement of financial sustainability of non-profit sector by providing them with more opportunities to attract financial resources.
Firstly, it is necessary to think about tax preferences, which might be given to the NPOs, willing to conduct entrepreneurial activity, in order to encourage their engagement to profit-making activity. According to the present tax legislation, in case if NPO receives income from entrepreneurial activity it becomes a tax payer in the part of derived income (Article 126 of the Tax code of Uzbekistan). It is supposed that tax preferences can be given either by direct or indirect methods (for example, possibility of reinvestment of corporate tax to the social mission of NPO, tax deductions for donators and etc.). In case of tax deductions for donators it is assumed that donors will be easily motivated to donate to NPOs, implementing socially significant projects. However, in order to make a decision on these taxation issues it is necessary to conduct comparative study, learning the experience of the other countries, advantages and disadvantages which might be caused by tax preferences.
Secondly, it is significant to improve corporate management of NPO itself in order to avoid the situations of power abuse and to ensure the financial security of NPO's activity. Present legislation does not contain concrete provisions on the governing bodies of NPOs, it is only stipulated that the charter of NPO should contain rules on the structure and governing bodies of a non-state non-profit organization, if necessary, its audit and audit bodies or mandatory involvement of auditors (audit firms) [24]. Thus, according to such kind of flexible provision in the Law, NPO on its own discretion can decide which of the governing bodies will have the majority of authorities, and, among those, decision making authority plays a key role in determining the further perspective of NPO's activity. At the same time, in practice it may be observed a situation when the director of NPO in a bad faith can achieve the majority of authorities while drafting the charter in the time of establishment of NPO. Such kind of negative situation can lead to the abuse of power, waste of financial sources, which can cause financial problems for NPO.
Thirdly, it is significant to think about implementation of the organizational form of social enterprise for NPOs, willing to conduct entrepreneurial activity, because it may serve for attraction of more finances to NPO sector and also for harmonization of NPO legislation and Corporate Law to some extent. Particularly, the Law of Uzbekistan "On non-state non-profit organizations" prohibits distribution of profit among its participants (members), whereas an organizational form of social enterprise, which contains characteristics of both - profit and non-profit organizations, allows capped distribution of profit in the form of dividends among its shareholders and thus, this kind of entrepreneurial structure for NPOs may attract more financial support from individuals and profit organizations. On the other hand, this organizational form is suitable for NPO, because it prioritizes social mission, whereas the main mission of commercial organizations is making a profit. So, if NPO, willing to conduct entrepreneurial activity, will take other corporate forms, then corporate law will be applied with no prioritization of social mission and full distribution of profit among its participants (that is prohibited according to NPO legislation), so, it threatens with commercialization of NPO's activity. Thus, it is assumed that organizational form of social enterprise will be the most suitable legal form for NPOs, willing to conduct entrepreneurial activity.
However, "making space to articulate a dual mission is the easy part of designing an organizational form for social enterprise. Designing a for-profit form that will achieve social good is much harder". In order to establish a social enterprise, that is totally different from for-profit and non-profit organizations, legislation should establish a clear standard of social mission prioritization, and also there should be a clear standard of enforcement of legislation that requires social mission prioritization, otherwise it is not meaningful to establish this form of organizations, because, actually, profit-making organizations also can do some social activities [25].
Together with this, it is necessary for social entrepreneurs to think deeply about the market they are going to enter, to think about potential customers and competitors, their success will depend on understanding of these issues [26].
Fourthly, it is necessary to consider an implementation of deconcentration of authorities regarding the state regulation of nonprofit organizations. Actually, as it was mentioned before, NPOs do need not only financial resources, but first of all they are in need of material-technical equipment (for example, office, where they can work, presentation room, where they can hold meetings, events and etc., and technical equipment - computers, printers and etc.). In this regard, ministries and their regional departments can provide some help and support in solving this kind of problems, because in this case they will be closely connected with each other in terms of social partnership. On the other hand, regulation of NPOs would be more efficient, rather than being regulated by one competent authority.
Fifthly, it is necessary to consider reporting system of NPOs. In the accordance with the Law of Uzbekistan "On non-state non-profit organizations" an NPO must submit its report to registry, tax and statistics organs [27]. However, if it is prescribed by law that NPOs' annual reports must be open to the public and either NPOs or competent authorities must allow interested parties to view annual reports of non-profit organizations it would lead to better transparency, cause the trust and acknowledgement of people and for-profit corporations to NPOs' activity and, consequently, NPOs would have more chances to get donations.
And, finally, taking into consideration that many small and medium-sized non-state nonprofit organizations in the regions of the country are lack of knowledge about international donors and their grant programs, it is necessary to activate an activity of the National Association of non-
state non-profit organizations of Uzbekistan related to the facilitation of mutually beneficial cooperation of small and medium-sized non-state non-profit organizations with foreign and international organizations.
References:
1. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
2. "About activity, conducted in the sphere of non-state non-profit and religious organizations", accessed December 15, 2018, http://www.minjust.uz/uz/activity/nnosphere/89267/
3. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
4. Ibid.
5. Ibid.
6. The lists of grant and social order winners in 2017, accessed October 12, 2018, http://www.fundngo.uz
7. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
8. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
9. Abdukarimov et al., Development of Civil Society in Uzbekistan: annual report, 2015.
10. "About us", accessed January 6, 2019, http://ngo.uz/index.php/ru/12-o-nas
11. Ibid.
12. Abdukarimov et al., Development of Civil Society in Uzbekistan: annual report, 2015.
13. The Law of Uzbekistan "On the non-state non-profit organizations" (1999), Article 3.
14. Ibid., Article 13.
15. Ibid., Article 10.
16. Ibid., Article 21.
17. The Law of Uzbekistan "On the non-state non-profit organizations" (1999), Article 18.
18. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
19. Abdukarimov et al., Development of Civil Society in Uzbekistan: annual report, 2015.
20. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
21. "On-line poll", accessed December 15, 2018, http://www.fundngo.uz/
22. Abdukarimov et al., "Development of Civil Society in Uzbekistan: report - 2016", 2016.
23. OECD, The Non-Profit Sector in a Changing Economy, 2003.
24. The Law of the Republic of Uzbekistan "On non-state non-profit organizations", Article 17.
25. Reiser, "Theorizing forms for social enterprise"
26. Manwaring, "Social enterprise in Canada: Structural options", 2011.
27. The Law of the Republic of Uzbekistan "On non-state non-profit organizations", Article 33.
