Non-Profit Organizations: Finance Act prescribes 15 percent limit on administrative expenses

Finance Act, 2017 has prescribed a limit of 15 percent on administrative expenses of Non-Profit Organizations to stop misuse of receipts/donations etc. received by NPOs and discourage them from spending such amounts on huge administrative salaries, vehicles etc. According to income tax circular 4 of 2017 issued by the FBR here on Wednesday, prior to Finance Act 2017, non-profit organizations, trusts and welfare institutions enjoyed 100% tax credit equal to the tax payable subject to fulfillment of the following conditions:
Return has been filed; tax required to be deducted or collected has been deducted or collected and paid and withholding tax statements for the immediately preceding tax year have been filed. Through Finance Act 2017, a new condition (d) has been added for availing this credit, which reads as under:
(d) the administrative and management expenditure does not exceed 15% of the total receipts.
This amendment introduced through the Finance Act, 2017 is to prescribe a limit of 15% on administrative expenses. However, this limit does not place any restriction on the operational activities of the NPOs as the project expenses are not covered under administrative expenses. The rationale behind this amendment is to stop misuse of receipts/donations etc. received by NPOs and discourage them from spending such amounts on huge administrative salaries, vehicles etc.
Moreover, the newly inserted condition will not apply to non-profit organizations, if charitable and welfare activities of the non-profit organization have commenced for the first time within the last three years and total receipts of the non-profit organization during the tax year are less than one hundred million Rupees. It may also be mentioned that this condition applies only to non-profit organization and not to "trusts" and welfare institutions," FBR added.