What is stopping HNWI in Asia to do more for philanthropy ?

 We have discussed about some of the factors driving HNWI to Singapore in yesterday article “Business and tax friendly regime driving Singapore to the top millionaires migration destination in Asia in 2018” (dated 8 May 2019), and today we will look into how the HNWIs are shaping the philanthropy landscape in Singapore.

Compared to the philanthropy landscape in US where total charitable giving was 2.1% of GDP (2017: US$210b), there is a lot of opportunity for philanthropy in Singapore where total charitable giving is just 0.7% of GDP (2016: S$2.86b) or just 1% of total US charitable giving. Notwithstanding the relatively low domestic philanthropy contribution in Singapore (vs the US), the philanthropy giving is comparatively more generous than most continental European countries. Singapore together with South Korea and India are ranked as generous in terms of Gross domestic philanthropy by the 2016 Charities Aid Foundation report.

However, given Singapore is the top Asia destination home of HNWI, is there a difference in philanthropy in Asia vs western countries ?

Some of the Asia philanthropy uniqueness are discussed below :

  1. Evolving Asian HNWI way of giving

Philanthropy in the West is more established and matured. There is good awareness within the western society and an established eco-system of philanthropy from awareness and values in society to established non-profit sector, charitable foundation and corporate CSR projects. This structured and regulated network helps in ensuring the transparency, accessibility and inter-operability of funding, information, services, participants (volunteers), human resources etc into and within the philanthropy eco-system, thereby creating maximum social impact. Many Asian HNWI are starting to transit to the next generation of successors with the creation of family offices and foundations, is beginning to shape the nascent philanthropy eco-system in Singapore. Many charitable foundations have beginning to transform their businesses in line with sustainable businesses that create maximum social impact to the society. The focus on integrated reporting and sustainable business practices has changed the face of how charitable foundation, organisation fund their charitable causes and how and where the funding goes to.

The development of the philanthropy eco-system requires a deep and wide participants. The emerging social enterprises in Singapore with the establishment of Raise with structured guidance on the operating model and governance is a good first step. It will take some years for social enterprises to demonstrate a sustainable operating model and established social impact. Evolving regulation, governance, accessible channels of charitable funding, operation support network in terms of trained professional in delivering effective charitable programmes and services both frontline and back office will slowly shape the way how philanthropy will run in Singapore. Charitable profession is still not an admirable career option to many aspiring university graduates and there are limited local universities that offers such a study option. Limitation on the accessibility of trained, experienced and dedicated talents will restrict the operational capability of charitable organisations.

  1. Crowding out effect of government philanthropy

In Singapore, philanthropy through the government constitutes the majority of charitable funding through government assistance programmes, bursaries, scholarships and donation via various government linked entity eg Tote Board, NKF, president’s challenge programme etc. However there are pockets of charitable gaps that private entities could participate in. Specifically in areas where governments fear to tread, specific social issues that the broad government initiatives could not covered.

One specific initiative is the creation of Asia Philanthropy Circle (APC), a donor platform started in 2015 which brings Asian philanthropists – private individuals, families or foundations – together to address the region’s social challenges. This provides an established eco-system for the participation for a focused and coordinated philanthropy network in Asia, leveraging experienced philanthropists to evolve a uniquely Asian type of philanthropy to deliver an uniquely Asian philanthropy to an Asian social challenges.

  1. Lower motivation of philanthropy due to absence of inheritance tax

With key focus by Singapore and the Asian economies to drive entrepreneurship and attract direct investment, a business and tax friendly regime is the common theme. However, a low tax regime with low business tax as well as low or non-existent inheritance tax in Asia (zero inheritance tax in Singapore, Hong Kong, Malaysia, India Indonesia, China, low inheritance tax of 5%/10% in Thailand), does not provide an impetus for HNWI to trigger acts of philanthropy at the point of estate transfer as individuals are allowed to pass all or most of their wealth on to their families after their death. Conversely, HNWIs in high inheritance tax regime eg US, Japan, Korea would have strong motivation for early estate planning for distribution of assets through charitable cause before or upon death to take advantage of the significant tax deduction or savings.

Top 10 inheritance tax countries:

  1. Japan 55%
  2. South Korea 50%
  3. France 45%
  4. United Kingdom 40%
  5. United States 40%
  6. Spain 34%
  7. Ireland 33%
  8. Belgium 30%
  9. Germany 30%
  10. Chile 25%

The philanthropy landscape in Singapore and Asia is definitely emerging and substantial leapfrogs are to be seen in the next 5 years. This will require a transformation relook and perhaps a disruptive rethink of how to deliver and operate philanthropy on a sustainable way to deliver the maximum social impact to the changing social issues in Asia. Would philanthropy be the next aspiring entrepreneurial journey for the likes of Bill Gates or Steve Jobs ? If an entrepreneurial journey or a starting career in silicon valley is next to a career in philanthropy, we all know philanthropy would have arrived. And we may witness Asian philanthropy leading this in the future.