Finance Bill: NPOs

Federal Finance Minister Ishaq Dar in his budget speech clarified that those non-profit organizations (NPOs) unable to spend more than 75 percent of their income on charitable and welfare activities would retain their NPO status after payment of a 10 percent tax whereas at present they lose their NPO status and their entire income is taxed at 30 percent. In the Finance Bill 2017, he referred to the 25 percent left unspent with the NPO as surplus funds and defined these surplus funds as money: (i) not spent on charitable and welfare activities; (ii) received during the tax year as donation, voluntary charity, subscriptions and other income; (iii) more than 25 percent of total receipts of NPO received during the tax year; and (iv) not part of restricted funds (defined as any fund received that could not be spent and treated as revenue during the year due to an obligation placed by the donor). This definition is baffling as voluntary contributions and donations cannot by any stretch of the imagination be defined as surplus; besides the amount left over would eventually be used for charity.
One may assume that the Finance Minister's rationale for amendments relating to the NPOs may be premised on the existing rules that govern the Baitul Mal required to spend all donations and federal/provincial government allocations within the year that these donations and federal/provincial government allocations were made. However, this condition accounts for much reduced scrutiny of applications for assistance at the end of each year prompting many economists to suggest to the government to shut down Baitul Mal and use the money for mainstreaming government's activities relating to assistance to the vulnerable.
Dar also noted in his budget speech that the associated administrative and management expenses of NPOs be limited to 15 percent of their total receipts. One cannot but support this amendment as this would contain the administrative costs of those NPOs that are not operating efficiently.
Successive governments, including the first two tenures (uncompleted) of the Pakistan Muslim League-Nawaz in the centre as well as during its ongoing tenure, have allocated trivial amounts as a percentage of Gross Domestic Product for social sector development. With social sectors devolved to the provinces post-2013, the Ishaq Dar-led finance ministry has pressurised the provinces to generate large surpluses in order to enable it to meet its budget deficit targets which in turn has reduced allocations for social sector development considerably. And to add insult to injury, preference is being given to Metrobus rather than to clean drinking water and these NPOs are filling the gap left by the federal and provincial governments by undertaking projects in these sectors very successfully. In addition, Pakistanis have little confidence in their government's capacity to undertake projects in a transparent manner and the recent controversy surrounding the China Pakistan Economic Corridor (CPEC) well reflects the continuation of this sentiment.
The Pakistan Centre for Philanthropy made a startling disclosure a couple of years ago: as a nation Pakistanis give around 240 billion rupees to charity per annum. And as several projects take time to be implemented if the unused amount is 25 percent of the total - 60 billion rupees - money that Dar would like to see in the treasury. However, there can be no two views that while the bulk of the money would be spent by a dedicated NPO on welfare activities the government may use it for politically expedient purposes or on raising the salaries and perks of the privileged.