Restrictions on NPOs

Non-profit organisations (NPOs), also usually known as non-governmental organisations (NGOs), have generally been operating freely in the country and hardly any questions were asked from them. Of late, however, some of their activities have been subjected to criticism by certain sections of society. In a move to regulate them properly, the Federal Board of Revenue (FBR) has now made it mandatory for NPOs to provide details of funding, including those from donors, to avail income tax exemptions. In order for the NPOs to avail tax rebates, various documents have to be provided to the FBR under the Standard Operating procedure (SOP) which include Memorandum of Article of Association, Trust Deed or Rules or By-laws for the operation of an NPO. It must also be declared that the said entity was not run simultaneously for commercial purpose. Exemption certificates will only be issued by the FBR after details of donors were provided as prescribed under Income Tax Rules, 2002. Besides, NPOs, are required to provide a list of beneficiaries of Rs 5,000 and above and FBR officials would examine the salary statements submitted by the NPOs to ensure that the board of governors, directors and trustees are not using the organisation for personal gains. Statements of accounts of NPOs would also be screened to ensure that funds were not used for some other purpose. In the case of universities and other educational institutions, details of investment like in vehicles and premises would be obtained for record. NPOs will only avail exemptions on those incomes whose financial details were available. In the case of missing facts or figures, NPOs will have to pay 100 percent tax liability.
As is obvious, the list of restrictions and the requirements to be met by the NPOs is quite exhaustive and meant to cover all the loopholes in order to ensure that the NPOs work strictly according to the prescribed rules both in letter and spirit. In the past, income tax exemption was available on donations, voluntary contributions, subscriptions and investment in federal government securities if they were in the pursuit of carrying out welfare activities. Trust or welfare institutions or NPOs, universities or other educational institutions were also included in the exempted list. The exemption rules were applied loosely, without strict investigation or monitoring the activities or source of the income of the NPOs claiming exemption from taxes. The relaxed attitude of the government provided some unscrupulous elements the opportunity to exploit the tax loopholes and benefit themselves without fulfilling the intended objectives of an NPO. Hopefully, the latest procedures prescribed by the FBR would ensure that the NPOs were operating according to the law and rules of business. More specifically, the fresh rules would promote documentation and compliance of tax laws by NPOs besides detecting black money and stopping leakages of taxes through the misuse of the facility. Also, tax evasion through NPOs has now been made much more difficult with the result that more taxes could be mobilised. Besides, the new rules could motivate the NPOs to adhere more strictly to their charters and assigned functions and discourage the sponsors to reward themselves excessively. It would also now be hard for the NPOs to operate in a secretive manner. This was the accusation levelled by certain political groups on the working of the NPOs. However, we are of the view that the NPOs, which have been operating in the country for a long time and in a transparent manner to benefit the citizens of the country would not be very much bothered by the new restrictions.
The importance of NPOs in a country like Pakistan, nonetheless, cannot be underestimated. In most cases, they are operating in very crucial sectors and attending to social and gender issues like the promotion of health and educational facilities and women emancipation in less developed areas of the country. Government cannot attend to these issues judiciously due mainly to paucity of resources and lack of efficiency and expertise in the relevant departments. As such, it may be against the interest of the country to prescribe very harsh rules which could hamper their smooth functioning or growth or force them to leave the country. A proper balance was, therefore, required to be maintained to check the misuse of the tax exemption facility offered by the government and the freedom to operate without unnecessary shackles, at least for those NPOs, which are known for their integrity and steadfastness. Unfortunate though it may be, but most of the developed countries now dispense their aid and assistance through NPOs due mainly to corruption and inefficiency in the developing countries which result in suboptimal utilisation of their taxpayers' money.