Counter-productive and self-defeating
NPOs complement government as its quasi on all social domains that contain poverty, if not end it, and improve literacy in the country. The government should not consider NPOs as its adversary but rather should accept NPO as its ally in its fight against poverty, and facilitate to strengthen the sector
The government’s new law under the Finance Bill loading new taxes speaks volumes of government’s lack of understanding of the 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 aim to stifle its independent voice in Pakistan.
Under the new law a Clause D is added in 100C of the Income Tax Ordinance, which prescribes limit of 15pc on administrative and management expenses is a sheer violation of agreement between donors and NPOs. Many NPOs will not be able to comply with this restriction as they are service delivery organisations e.g. hospitals, schools, capacity building and advocacy providers, microfinance service providers, etc. Moreover, surplus funds of NPOs if over and above 25pc of total receipts during the year will be taxed at a rate of 10pc. 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 they will be liable for corporate tax at 30pc.
What a joke! The government is taxing 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. What a shame!
Pakistan continues to face dauntingchallenges in ending poverty and increasing literacy. It continues to perform badly on the gender development indices across the country and stands at 26.5pc poor, 58pc literate with most unequal gender disparity. 26 million children remain out-of-school and 85pc individuals do not have access to financial services. Health care services are below the required minimum standard and maternal mortality is 178 deaths for 100,000 births. Despite all macro-economic indicators the country continues to lag behind in human development initiatives.
NPOs work at many levels to address national interest and issues across the country. A set of successive, successful, and replicable microfinance programs have helped over five million families (30 million beneficiaries) across the country to create one million jobs. 50pc of which are females. Nearly a million out of schools children are now enrolled and assisted to receive good quality education from numerous initiatives. 50pc or these are girls. 10,000 NPOs jointly employ over 500,000 individuals and create local job opportunities. 25,000 village and peri-urban community organisation further contribute as extension to this healthy number.
Over 23 million women now have better access to standardmaternal and reproductive health care services. And, NPOs remain at the fore front to deliver essential rehabilitation services to the disaster affected people. Equally important is the role of NPOs in struggling for the movement of rights especially of 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 millions of men and women to fight for just and peaceful society.
This new tax liability will impair NPOs working model, dry up new funding, and prevent it from reaching out to the needy and poor. NPOs will start receiving reduced funds from it donors, especially international donors who can opt out to continue funding due to the new tax regime. The book keeping cost will further increase and may require hiring tax consultants to manage accounts. Additively, NPOs will direct their core activities in managing tax matters. NPOs don’t have an appellate right under the current tax regime, which can open up new harassment and corruption avenues to deal with.
There is no international precedent for such taxing on institutions which do charitable and welfare work.The present overly regulated controlsare very intrusive and over-arching. After registration, the NPOs need to be certified from PCP;obtain prior NOCs from EAD and ministry of interior, approval from FBR for tax exemptions, etc. In addition to that, the SECP is regulating institutions under section 42 of the Companies Ordinance, adding a new regulatory layer, which will further stifle the sector activities. Not to forget, that all NPOs are faced with regular threatening visits by different agencies.
NPOs complement government as its quasi on all social domains that contain poverty, if not end it, and improve literacy in the country. The government should not consider NPOs as its adversary but rather should accept NPO as its ally in its fight against poverty, and facilitate to strengthen the sector.
The country’s current tax deficit is calculated at Rs3.2 trillion by the World Bank, while on average 29pc registered tax payers pay taxes. From the 10,000 NPOs that may be made liable to pay tax under the new regime, will contribute a mere 0.01pc assuming Rs1 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. There are other ways to bring people and companies in the tax pool than taxing NPOs.
Conclusion
The government’s role is to ensure a thriving civil society which is capable to address needs of its poor and its role to make laws to control hoax NGOs and “terrorist outfits” . Regulating NPO through this tax whip will be highly counter-productive and self-defeating. There are of course many other ways and means to control that and keep anti-state activities at check.
The government should immediately put this law into abeyance and engage with NPO representatives to resolve this punitive order.
