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News Details
2009
DRAFT DIRECT TAX CODE BILL 2009
27/10/2009,-
IMPACT OF DRAFT DIRECT TAX CODE BILL 2009 ON
CHARITIES AND VOLUNTARY SECTOR OF INDIA
In its latest one sided experimentation with voluntary sector, the Finance Ministry came out with 'Direct Tax Code Bill', on August12, 2009. The initial observation on these codes, applicable to all voluntary organizations of India, predicts a very gloomy future. On the one hand the government promises decent life to "Aam Admi" (common people), and on the other, the country is going through a challenging phase due to financial recession and failure of crops. It is very unfortunate that those who are working hand in hand with government to serve the marginalized and the poor are being targeted. The preliminary listing of the changes proposed in the new Direct Taxes Code 2009 appears to lead to several adverse implications for the voluntary sector and may perhaps undermine its financial sustainability and survival in the long run.
The points given below are based on the input from renowned Tax consultants. We can circulate this concern to all NGOs to take appropriate action to influence and impact the outcome of the bill. It is still a bill to be presented in next session of parliament. If passed we all would be paying income tax from 2011.
The Finance Ministry has invited response from public and last date is September 30, 2009.
Some preliminary findings that would lead to the adverse changes that might hamper the functioning of the sector are:
1. This code is applicable to all organizations operating as not-profit entities, which can range from foundations, NGOs, research and advocacy organizations, charity hospitals, etc. Whether you are providing health or livelihood related services to marginalized in remote villages, or conducting research based advocacy, printing popular publications for awareness, charging nominal user fee to provide sustainability to community initiative. Unfortunately, this Code puts large public (Ports,Religious) trusts and small organizations in one category.
2. NGOs will not be able to carry forward unspent income of one year to the next year, without paying a 15% tax on it. The same applies to multi-year grants - they will not be able to set aside or accumulate funds for long-term projects. Income and expenditure will have to be accounted on cash basis only. Some of us may get funds in January, they have to finish it by March or pay tax. That is to say every paisa which is left on March 31 will be taxed.
3. The grant-making will become further complicated for most of the donor agencies operating in India. This Code might force such agencies to move out of India to other developing countries. This will also be the case with funds received from the government, which are already starving due to exit of bilaterals from India.
4. Though surplus of one year will be taxed, it may be difficult for the NGOs to bring forward deficit of a past year, and set it off against the surplus. Thus, if you spend borrowed money for a project, you may end up paying tax when the grant is actually received next year. In order to avoid the new taxation code, many NGOs might have to resort to unscrupulous means to show their accounts and there will be gross misuse of funds. This may pressurize them to showing "no surplus", thus, forcing manipulation of accounts. This might lead to mushrooming of new breed of accountants to manage the accounts.
5. The concept of 'Charitable Purpose' has been replaced by 'Permitted Welfare Activities'. This might reduce innovation and flexibility of approach, as the concept of 'permitted' smacks of license raj. The "Permitted Welfare Activity" will be defined by the government officials. This Tax Code will give the Government (and its various line ministries including the Income Tax, Police and other control bodies) a free run to inspect the functioning of NGOs. Thus, the autonomy of NGOs will be at stake. Every time the ITO will define your activity as 'Permitted' or not.
6. Further restrictions are being placed on incidental business activities. For example, an NGO selling greeting cards to raise funds may be able to do so only if these are produced by the beneficiaries.
7. Approval under 35AC (100% deductibility for donors) is being discontinued. NGOs will be able to offer a maximum of 50% deductibility to their donors.
How can we be a part of this movement?
• Discuss this with your chartered accountant to ascertain how this Code is going to impact your organization. Develop a note and send it to the Finance Minister.
• Initiate awareness campaigns about the draft Direct Tax Code Bill 2009 and generate active debate on the issue with your stakeholders.
• Send representations to our local MPs. Urge them to ask question in Parliament.
• Intensive campaigning Media to highlight this issue locally and nationally.
• Sharing this information with our partners / members, so that they can also understand the gravity of situation. Urge them to be part of this campaign.
• Organisations should give comments about the impact of the Code on their work on the website of the Ministry of Finance using the following links http://finmin.nic.in/DTCode/index.html ;http://finmin.nic.in/DTCode/query.asp; you can also write directly to Shri. Pranab Mukerjee, Hon'ble Minister of Finance at Room No - 132 C, North Block, New Delhi - 110001, Phone: 011- 23092810; 23092510, Fax: 011- 23093289, Email: pkm@sansad.nic.in
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Cultural Academy focuses on a culture of active non-violence, determined to be in solidarity with people around the world struggling for human rights, economic justice, basic education and peaceful co-existence. We support and strengthen women's peace-making initiatives globally. more about us...
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Beena Sebastian
Cultural Academy for Peace
+91 484 2369433
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