Letter to ST forum in response to Andy Ho article titled “Megachurches’ tax status bears scrutiny”

Dear Editor,

I refer to the ST article by Andy Ho titled “Megachurches’ tax status bears scrutiny” dated 1 April 2010.

I believe the joint reply by IRAS, MCYS and URA in response to the forum letter by Mr Lester Lam on the same subject has clarified the official position of the respective authorities. Nonetheless, I think Andy’s effort to share further insights on the matter is commendable.

I find it unfortunate though, that Andy failed to make a distinction between churches that do not solicit funds from the general public with charities that do. By using terms such as ‘public charities’, ‘public policy’ and ‘public money’ in his discussion about churches, he might have caused some confusion among his readers who may be led to think that churches are involved in soliciting funds from the general public like charities such as Ren Ci Hospital and NKF, when in fact churches only receive tithes and offerings from their members. In this respect, churches are similar to private foundations whose funds come from select groups of individuals and families and not the general public.

As to whether the funds of a church and its related entities should be subject to taxation, I think a distinction should be made between income generated from business activities and the tithes and offerings received from church members. In view of the difference in their nature – one being commercial and the other being non-commercial, I believe the former should be subject to taxation but not the latter. In order to properly record and report the different forms of activities conducted by the church and its related entities, it is therefore crucial for churches to make sure their organisational structure and their accounting functions are suitably set up and adequately segregated. Having said the above, I reckon this is a matter best left to the relevant authorities to deliberate and decide upon.

With regards the motivation of the mega churches getting involved in commercial deals, I am of the view that they are not motivated by profits, but by the practical needs for larger venues to accommodate their growing congregations. In Singapore, land plots allotted for religious use are limited in availability and size – a typical plot is usually around 4,000 sq m in size, which is good for a 1,000 plus seat sanctuary. With such strict zoning of land usage in Singapore, mega churches are, in a sense, ‘forced’ to take the commercial path. How many of us would seriously regard committing funds into the building of a civic and cultural centre or the securing of some convention facilities as the best way to invest for profits? If the key objective were to be profits, I believe most of us would prefer to go for the many other options available.

It is also important for some of us to clear the misconception that the mega churches are constructing a church building, or converting existing commercial properties into premises exclusively for church use. The civic and cultural centre at one-north will be, and the Suntec Convention Centre will remain, open to and available for the public to use and enjoy. The mega churches in question will only be renting certain spaces at the respective venues when needed, not unlike what the smaller churches are doing on weekends all around Singapore – leasing the many hotel ballrooms and other commercial venues to hold their activities.

As for the issue on members’ voting rights, I believe that in large organisations, for practical and efficiency reasons, it is not uncommon to have a smaller group of voting members making decisions on behalf of the larger whole of all members. In Singapore, a church may set its own policies on membership criteria, privileges and voting rights and these are subject to approval by the Registrar of Societies. Setting the appropriate criteria for full voting membership is an important step to protect the vision and the finances of a church, or for the matter, any society or association.

Valid concerns and suggestions have been raised by various quarters in our community since City Harvest Church made their announcement on the Suntec deal. Let us trust the Commissioner of Charity and his team, whom I understand are looking into the matter, to carry out the necessary investigations and clarifications, and to enforce the appropriate measures to safeguard the best interests of everyone concerned.

Best regards,
Tan Lip Kee

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The Straits Times – Review

Apr 1, 2010

Megachurches’ tax status bears scrutiny

By Andy Ho

A LOCAL megachurch announced recently that, for $310 million, it was becoming a co-owner of Suntec Singapore.

According to Reverend Kong Hee, who heads City Harvest Church, the megachurch will co-own a company that already owns, in aggregate, 80 per cent of Suntec. That company’s profits are, of course, taxed. Thus when the church receives its share of that after-tax income, it would be all kosher.

The church says it created a free-standing, for-profit corporate entity, which it wholly owns, to house its business operations. Still, in a partnership and other joint-venture arrangements, each partner is regarded as being fully involved in the underlying business. The church leadership is reported to have explained that co-ownership of Suntec means that ‘the rent we pay out (in renting space at Suntec) will be recovered by CHC (City Harvest Church) in the form of profits and dividends’.

Could this deal jeopardise the church’s tax-exempt status? The Commissioner of Charities is seeking clarifications from City Harvest on its business venture.

On his website, Reverend Kong lists his occupation as ‘businessman’ and says he has a doctorate in business from Seoul’s Hansei University – called Soonshin University before 1997 and Full Gospel Theological College in the 1950s. Reverend Kong also has a master’s degree and a doctorate in theology, both from an online school. One thus assumes that Reverend Kong, presumably having also been duly advised, would have been able to digest and grasp the tax issues involved.

Why the unease with a church going into business? At first blush, it seems unnecessary to prevent charities, churches included, from using the market as a source of funding. After all, no one would want to ban gift shops or restaurants at the Art Museum or the zoo, for instance.

In a 4-1 majority decision in the Commissioner of Taxation v Word Investments, the Australian High Court declared that ‘commercial activities and charitable status are not necessarily inconsistent’.

Still, many find commercial activity by charities odd or even unacceptable. If nothing else, their resources as well as the attention of their managers could be diverted from their core missions. Such charities may also come to be run by a set of managers motivated by market values, the opposite of the altruism that charities should exemplify.

Moreover, commercial activity can also morph into empire building for its own sake, with profits being ploughed back into the business instead of funding the charity’s non-business activities.

But these are issues that concern only the organisations themselves. The public policy issue here is whether charities that engage in substantial commercial activity should still retain their tax-exempt status and how they ought to be regulated.

The reason the public should be concerned is that tax exemption is, in effect, a government subsidy. When a church goes into business, the public dollar is effectively subsidising that activity. For example, because City Harvest is using tax-exempt money to buy its share of Suntec, the transaction is effectively being subsidised by public money.

Legal and taxation experts suggest that a corrective tax mechanism would be justifiable in such circumstances. After all, it is implicitly assumed that religious organisations cannot afford to pay taxes since their assets do not produce income streams.

But when a church engages in a massive commercial transaction, it shows that it clearly could have afforded those taxes. Thus, the government would be justified in recouping any uncollected tax.

Think of it as an exit tax imposed on the church for exiting its exclusively non-profit stance for a for-profit one, at least in part.

How should such churches be regulated henceforth?

At least two megachurches here seem to govern themselves more like private foundations than public charities. While a believer at a typical autonomous, non-denominational church here can opt to become a full voting member of his church, very few – say, 700 out of 30,000 in a megachurch that is an autonomous, non-denominational set-up – may be invited to become voting ‘executive members’.

Irked by the Suntec deal, investment banker Simon Teoh, who attends City Harvest, has written to the Commissioner of Charities. He alleges that the church’s 12-member management board went ahead ‘with utilising the church’s building fund ($65 million as of end-October 2009) and committing the church to large future liabilities…without consulting the members…at the recent AGM. No EGM has been scheduled’.

Thus, in effect, these megachurches govern themselves like private foundations. In Singapore, private foundations are lightly regulated compared to public charities since their funds come from wealthy individuals or families and not the public. But most private foundations are grant-making institutions. These churches, by contrast, not only make no grants but instead solicit funds from the public.

Once their business enterprises can regularly channel enough profits to them so that Sunday collections will no longer matter, the management boards of these megachurches will no longer be dependent on their members.

But citizens – or the relevant group of citizens, at least – should have a voice in the governance of such churches as long as they are still soliciting funds from the public.

So the Commissioner of Charities should consider if such churches should be regulated more closely. Certainly, their tax-exempt status is no sacred cow that cannot be slaughtered if a critical re-examination justifies doing so.

andyho@sph.com.sg

Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access

Clarifications by Suntec Singapore on the "co-ownership" of Suntec Convention Centre

On 9 March 2010, Lianhe Zaobao (Singpore’s leading Chinese press) reported that Suntec Singapore had released a one-page statement and a 3-page FAQ in response to City Harvest’s announcement that it will be paying $310m to “co-own” Suntec Convention Centre.

An extract of the Lianhe Zaobao news article, which appeared on page 4 of the paper, is reproduced below:

新达新加坡声明： 城市丰收教会入股 不影响新达新加坡运作

新达新加坡国际会议与展览中心说，通过ARA Harmony基金获得其部分股权的城市丰收教会，在基金的参与不大，也没有董事会席位。它的加入不会影响新达新加坡的正常运作，也不会引发任何人力削减或裁员行动。

　　新达新加坡（Suntec Singapore）昨天发表上述声明，对城市丰收教会（City Harvest Church）决定入股的消息作出回应。

　　新达新加坡在1页长的声明和3页长的问答录中说，它所发给城市丰收教会的授权合约允许后者在周末使用6楼的三个会议厅、3楼大厅和横跨2楼和3楼的礼堂，明年3月生效。


Extracts from the FAQs issued by Suntec Singapore are as follows:

1. Who owns the Suntec Singapore International Convention and Exhibition Centre (Suntec Singapore)?

- Suntec Singapore is owned by the ARA Harmony Fund. Stakeholders of the Harmony Fund include Suntec Reit (20%) and other private investors including City Harvest Church.

2. Does City Harvest Church have a majority share in the Harmony Fund?

- While details of the stakeholders are confidential, it can be confirmed that City Harvest Church has a minority participation in the Harmony Fund.

3. Will City Harvest Church have a seat on the ARA Harmony Fund Board?

- Currently, CHC has no board seats in the ARA Harmony Fund.

4. Will the Church have any influence in the daily business of the Convention Centre?

- No. The operation of the Convention Centre has been contracted to Suntec Singapore International Convention and Exhibition Services Pte Ltd, a wholly owned subsidiary of ARA.

5. What leased spaces will City Harvest Church be using in the convention Centre?

- Suntec Singapore has issued a license agreement to the Church to provide 3 halls on the 6th floor, the Gallery space on the 3rd Floor and the theatre on the weekends. The license agreement will come into effect in March 2011.

6. Will the Church be renovating the licensed spaces for their use?

- Yes. An auditorium with the latest sound system will be constructed in the 6th floor halls. This auditorium will be available for Suntec Singapore to market for MICE business and other events during the week. The Gallery will be converted into smaller rooms for exclusive use by the Church. There are no changes planned for the theatre that will be used by the church on the weekends only.

(Source: http://lushhomemedia.com/2010/03/07/city-harvest-paying-310m-to-become-suntec-co-owner/ )

Suntec Convention Centre: CHC’s New Home

"CHC’s New Home: Suntec Convention Centre" was the title of a news article that appeared on the front page of The Sunday Times, on March 7th, 2010. An extract of the article is reproduced below:

"Amid cheers from the congregation, City Harvest Church (CHC) yesterday announced that it will pay $310 million to become a co-owner of Suntec Singapore, a prime piece of downtown real estate.

Senior pastor Kong Hee broke the news first at CHC's service at its Jurong West building, then later at another service at the Singapore Expo in Changi.

He said CHC had acquired a 'substantial stake in a consortium company that owns 80 per cent of a joint venture fund that owns Suntec Singapore'.

The complex's full name is Suntec Singapore International Convention and Exhibition Centre.

The $310 million includes the cost of acquiring shares in the consortium, rental costs, renovation costs and others.

Suntec Singapore was acquired by ARA Asset Management through the ARA Harmony Fund last year, with its investors comprising Suntec Reit - which holds 20 per cent - and a consortium company which holds 80 per cent."

(Source: http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_499058.html)


On March 8th, 2010, Kong Hee, the senior pastor of CHC posted a blog entry which elaborated more on the matter. By 12 March, 2010, the blog entry attracted more than 160 comments.

One of the most interesting comments was made on March 12th, 2010 at 12.20am, by John, apparently an executive member of CHC, in response to a comment made on March 11th, 2010 at 10.16pm by Derek Dunn, the executive pastor of CHC. John's comment is reproduced below:

"Dear Pastor Derek,

I shall accord you the respect you deserve as an Executive Pastor and return the politeness in my reply to you. I guess it’s not in my place to accept the apology concerning remarks made about the other church which was named openly by Pastor Kong Hee, but I do appreciate the gesture. As to whether it was done intentionally or not, I have to say that you know it’s not the first time. I do hope that we learn to treat our fellow brothers with respect since we are all in the same family. We may differ in our interpretation of scripture, but to categorize them with sinners is very uncalled for.

With regards to the truth behind the Suntec deal, I guess it may be a true fact about the non-disclosure but at the same time it is also a convenient excuse to not divulge very key information that is crucial for the confidence and full-hearted support of this deal by every member. I still do not understand why the leaders agree to a non-disclosure for the sake of Harmony’s shareholders when the members of the church, who are essentially shareholders too, are kept in the dark.

I agree that minority could mean anything from 1 share to 1 short of 50%, but you, of all people, should know that the stake purchased, based on our available funds and based on sound reasoning, is going to be found in the far lower half of that range. Yes, maybe in time to come when the full $310M is raised, but not now and certainly not in the near future.

This is one other reason why people like me are unhappy. To see our leaders say things that is technically not a lie but yet leads to a certain impression. And it results in our members, especially the young ones, going around declaring, blogging, twitting and facebooking we own Suntec City, have 1,000,000 sq ft, we have 78 years lease, the other church will pay rent to us and all for $310M, compared to other church who pay $500M for 30 years (evidenced in contributions above).

Please… even if we have a better deal, should we have such an attitude? This kind of behavior is a reflection of a leadership that is always comparing, competing and always needing to be number one. I know somebody’s got to be number one but it’s the competitiveness and the strong driving ethos of the church that makes many of our members to behave this way.

Why don’t the leadership do something and correct the wrong impressions concerning the building? I’m sure something can be done without infringing on the NDA.

Pastor Derek, with regards to the building, you don’t have to answer since it’ll be difficult to clarify without disclosing confidential info. I trust that you really believe you are doing the right thing for CIty Harvest Church and I respect you for being able to articulate your response to me in such an honorable and respectful demeanor.

Pardon my candidness in certain portions but it is really said without malice.

Thank you."
(Source: http://www.konghee.com/www/2010/03/chc-new-home-suntec-convention-centre/)

Note: Should you have any comments, please do NOT leave them here. I'd encourage you to visit the pastor's blog, read through the blog post as well as the responses, and then leave your comments there. Thanks!