The New Tax Code seeks to change the concept of non-profit NGOs sector
When the honourable Prime Minister was inviting active participation of the civil society in ensuring effective delivery of his government's ambitious development agenda for millions of aam admi from the ramparts of the Red Fort on this Independence Day, he was perhaps unaware of the fatal implications of the new Income Tax Code released only three days before by his own finance minister.
Tinkering with various Sections of the Income Tax Act 1961, as it governs the non-profit (voluntary, charitable, civil society, call what you may) organisations (NPOs), has been going on for nearly three decades now. Sometimes, only religious publications are allowed as tax exempt, and sometimes other educational publications are also included. Sometimes, business income incidental to the achievement of the core objects of an NPO is allowed as tax exempt, sometimes disallowed. Most recently, the Finance Act 2008 had redefined the meaning of tax exempt 'charitable purposes' in such a significant way that purposes other than education, health and relief to the poor were suo motu debarred from tax exemption if they earned any revenue in forms other than donations.
Now comes the new Code, whose Section IV deals with NPOs. What does it imply? It reinforces the amendments of 2008, it further proposes 15 per cent tax on any surplus carried forward (even if it is due to 'funds received in advance'), it gives complete suo motu tax exemption to religious trusts and endowments, and it proposes capital gains tax as well as tax on income from sale of products that an NPO may be supporting local self-help groups to produce. It even changes the very concept of charitable purpose to 'permitted welfare activities'. Tax exemption regime for individual and corporate donors has also been curtailed significantly, thereby implying declining indigenous contributions from the Indian society to the sustainability of the voluntary sector in India.
It is amazing that such sweeping changes affecting the entire non-profit voluntary sector have been proposed without articulation of a comprehensive framework of what we as Indians would like the civil society to be contributing to the future development of the country in the next decades. The legal frameworks of Society & Trust determining incorporation of such NPOs date back to colonial periods of 19th century; they club all types of organisations into a single form (so that Apollo Hospitals and primary health care programmes in Jharkhand are treated alike, just as non-formal education of tribal youths in Chhattisgarh is treated in the same manner as Doon School).
The same government of Dr Manmohan Singh had announced a national policy on the voluntary sector in 2007, and urged various ministries and departments of the Central and state governments to operationalise the policy during the 11th Plan. Is this the outcome of that operationalisation? It completely violates all the tenets of that policy.
The makers of this proposed Code have not looked into how voluntary organisations working on various government schemes receive funds nowadays—gone are the days of grants, now funding is done on the basis of contracts based on invited applications to 'deliver' certain outputs in a time-bound fashion. In the new Code, this is taxable business income. If voluntary organisations provide support in the implementation of the National Rural Employment Guarantee Scheme, literacy, women's empowerment, rehabilitation of child labour, strengthening capacities of panchayats and municipalities, support the enforcement of Right To Information, Domestic Violence and Forest Rights Acts (passed by this same government) through the use of public funds, then they would all be taxed in the future. Who will decide what is 'permitted welfare activity'? Is this the new licence permit raj in the field of social and human development? What will happen to advocacy campaigns on human rights, child rights, rights of tribals, etc.?
When all sections of Indian society are going global—this government has encouraged business institutions to operate in the global market and proclaimed that India was a donor for many other countries—why is it that the new Code restricts the tax exemption only for domestic operations? Why are Indian NGOs not encouraged to work globally, just as European and North American ones do? Is this not desirable for an emerging India?
It is surprising that these sweeping changes have been proposed without adequate consultations with those who have worked in, studied and championed the growth of a vibrant and active civil society in India over the past three-four decades.
Millions of citizens' groups, resident welfare associations, mahila mandals and small voluntary organisations in remote rural and urban areas of this country, and hundreds of social movements have been the sources of alternative thinking, social innovations and critical discourses on models and approaches to development that promotes justice, equity and inclusion in India. Thousands of research and training institutions have contributed immensely to improving the design and delivery of numerous development programmes over the decades. Almost all the schemes and projects of the Central and state governments now invite voluntary organisations to join in their implementation. None of this will survive if the proposed Code is allowed to be implemented in its current form.
Perhaps that is what the political, official and business elites of this country want anyways.
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