Business, Taxation

PCSF rejects new taxes on non-profit organisations

The Pakistan Civil Society Forum (PCSF) has rejected new taxes imposed on non-profit organisations (NPOs) in the Finance Bill 2018 and termed them unreasonable. While talking to Business Recorder on Thursday, convener of the PCSF Muhammad Tahseen said the government’s new law under the Finance Bill imposing new taxes speaks volumes of government’s lack of understanding on work, struggle and contributions of NPOs in Pakistan.

“We believe the government’s definition of NPOs does not consider the diversity and nature of its work in Pakistan. It is disturbing to read the new tax amendments as they seriously infringe upon the autonomy of NPOs and clearly aims to stifle its independent voice in Pakistan.” He demanded that the government should immediately put this law into abeyance and engage with NPOs representatives to resolve this punitive order.

He said the government’s role is to ensure a thriving civil society which is capable of addressing the needs for the poor and its role to make laws on controlling hoax NGOs and “terrorist outfits”. He said under the new law – the clause D has been added to 100C of the Income Tax Ordinance which prescribes limit of 15% on administrative and management expenses is a sheer violation of agreement between donors and NPOs. The government cannot interfere in it by fixing such a formula which limits and violates the agreement between donors and the recipient NPOs.

A number of NPOs will not be able to comply with this restriction as they are service delivery organizations – hospitals, schools, capacity building and advocacy providers and microfinance service providers. Moreover, surplus funds of NPOs if over and above 25% of total receipts during the year will be taxed at a rate of 10%. Many NPOs have advance planning needs for which certain surpluses have to be maintained or they have to manage risks which also imply maintenance of funds. This will be difficult to comply with as a rule and therefore many NPOs will be required to pay taxes on such funds. If NPOs do not comply with, they will be liable for corporate tax at the rate of 30%.

“It is a joke to tax NPOs at par with multinational companies. So Edhi Foundation, The Citizens Foundation, HRCP and Aurat Foundation etc will be treated at par with Coca Cola, Nestle, WALL’s and Pepsi Cola,” Tahseen said While showing his reservation on the imposition of new taxes, Tahseen said this will impair NPOs working model, dry up new funding, and prevent it from reaching out to the needy and poor. The NPOs may also face funding constraints in terms of raising funds as many donors, especially international donors, may not continue funding given the tax requirement.

This will increase the cost of book keeping and taxation matters for NPOs as they will be required to hire tax consultants to manage compliance with this law and to do their tax planning. Since NPOs do not have appellate rights under the current tax regime which can also open up other avenues for harassment and corruption. The government should not consider NPOs as its adversary but rather should accept NPO as its ally in its fight against poverty.

Tahseen said the country’s current tax deficit is calculated at Rs 3.2 trillion by the World Bank while on average 29% registered tax payers pay taxes. From the 10,000 NPOs that may be made liable to pay tax under the new regime, mere 0.01%, assuming Rs 1 billion, can be raised through this additional whip. However, this tax liability will prove a huge obstacle in providing affordable and effective basic services to the poor.

A total of $6-7 billion is received by Pakistan in the shape of aid from multiple donors from the outside world. This could see serious reduction affecting various ongoing support programs, such as BISP. Given international preferences, it may see funds diverted to the Syrian refugee crisis as a result of this new tax and discourage donors to withdraw fund support to Pakistan.

He said NPOs work at many levels to address national interest. A set of successive, successful and replicable microfinance programs have helped over 5 million families (30 million beneficiaries) across the country to create one million jobs. Nearly a million out of schools children are now enrolled and assisted to receive good quality education from numerous initiatives.

Some 10,000 NPOs jointly employ over 500,000 individuals and create local job opportunities. As many as 25,000 village and peri-urban community organization further contribute as extension to this healthy number. He said the NPOs are struggling for the movement of rights, especially for women, children, minorities and people with disabilities. The efforts of NPOs in creating enabling environment for poor women to participate in the political processes and fight against violence cannot be ignored. They have reached out to millions of men and women to fight for just and peaceful society.