Montek opposes CSR 'tax' on companies

Planning Commission Deputy Chairman Montek Singh Ahluwalia today backed India Inc's opposition to any mandatory contribution by corporates towards social responsibility initiatives, stating the move would tantamount to "privatising taxation".

"There are certain proposals that you should introduce a legal requirement that companies should spend a certain percentage of their profits on CSR (Corporate Social Responsibility). I am not in favour of that," Ahluwalia said here adding, "That amounts to privatising taxation".

He said if the government wanted it can increase the rate of corporate tax to 32% from the current 30% rather than making it mandatory for companies to spend two per cent on CSR.

"If you want them to spend another two per cent, that’s like saying that corporate tax would be raised to 32%. It's better to do that. You cannot have a corporate tax and then say spend another 2%. I am opposed to that," Ahluwalia said on the sidelines of the India-US High Technology Group meeting here.

The Government has been maintaining that it would be mandatory for corporates to disclose to shareholders whether they have made a contribution of two per cent of net profit toward corporate social responsibility activities.

The Companies Bill, 2009, retains the provision of 2% of the average profit of the preceding three years for corporate social responsibility (CSR) activities, amid strong opposition from industry to the clause.

While the bill does not provide for any penal action in case the companies do not earmark such an amount for the CSR, such a disclosure is mandatory.

Industry has been of the view that the spending on the CSR should be voluntary in nature.

According to the proposal in the bill "every company having (net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more) or (a net profit of Rs 5 crore or more during a year) shall be required to formulate a CSR Policy".

In case of public sector companies earning a profit of Rs 500 crore and above, CSR spending should be between 0.5 to 2% of the net profit.