Asian wealthy learn about charity and the big stick

It may be easy to accuse China's billionaries of being miserly, but the tax regimes in western economies are a lot more conducive to the spirit of giving abroad.

It may be easy to accuse the continent's billionaires of being miserly, but the tax regimes in western economies are a lot more conducive to the spirit of giving abroad
When Bill Gates and Warren Buffett recently went to China to tout the merits of philanthropy, most of China's new billionaires agreed to attend the dinner only after receiving assurances they would not be compelled to make "donations".
It may be easy to conclude that Asian tycoons, who by and large have not really grasped the idea of "giving away" their fortunes, are more miserly than their western counterparts.
There are a number of factors that lead to the apparent stinginess of Asian tycoons and chief among them may be the tax code that discourages philanthropy in most Asian countries.
European countries and the US have large marginal tax rates, sometimes as high as 70 per cent, but balance that with generous tax breaks to those who donate to charities and the arts. So the decision for the western billionaire atop his money mountain is an easy one: give away bits of his fortune anonymously to the tax man or give it away to charity and make a good name for himself.
The situation facing billionaires in Asia is different. Take Hong Kong, where the top corporate tax is 16.5 per cent and there are no substantial tax breaks for donating to charity. In this situation the problem of giving to the tax man or charity does not arise and naturally billionaires have chosen to keep their fortunes for themselves.
Asian tycoons do engage in charity but it tends to be towards people they know, towards poor cousins and clan members, for example, rather than towards abstract non-government organisations feeding starving people in distant Africa.
Hong Kong's richest man, the property tycoon Li Ka-shing, has endowed a university in his ancestral village in China and given HK$1 billion (Dh473.8 million) to the Hong Kong University medical school, in return for naming rights.
But Mr Li has not gone very far geographically with his charity, although he did fund Margaret Thatcher's Conservative Party when Hong Kong was still a British colony.
But things are changing in Asia. As long as Hong Kong, like many of Asia's economies, was a high-growth economy with a mostly young population, the people could by and large pay their own way - even work their way up.
Now the Asian economies have slowed down, however, and the governments with low income from low taxes face the task of supporting an ageing population.
In this context, trying to persuade the billionaires to part with some of their fortunes becomes an attractive option. If the carrot of persuasion does not work, the government has the option of raising the low corporate taxes.
Hong Kong has seen a naked display of these "carrot and stick" options recently. There have been loud calls for Hong Kong to raise its low corporate tax, especially since the biggest local companies - the property developers - have been reaping enormous profit.
The Hong Kong government has resisted the higher tax option so far but recently announced the establishment of a dedicated Community Care Fund of HK$10bn to supplement its social spending. The government will put in HK$5bn and expects tycoons to provide another HK$5bn.
Lo and behold, Mr Li and a few other property tycoons promptly pledged large amounts so the fund should have no problems reaching its target soon.
Cynics have already calculated the amounts pledged by the various tycoons roughly matches the taxes they would have paid if the corporate tax had been raised by 1 percentage point to 17.5 per cent.
So in an indirect way, charity in Asia also comes down to the question of whether to pay the government in the form of taxes and get little credit for it, or pay the poor directly.
Perhaps the other governments of the world can take a few lessons from the government of Hong Kong and float government-supported charity such as the Community Care Fund so the tycoons can be "persuaded" to feel more charitable.
 
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