High level panel suggests uniform tax treatment for CSR works

A government-appointed high level panel has recommended uniform tax treatment for all CSR activities carried out under the new Companies Act and has also suggested leniency towards non-compliant firms in the first 2-3 years of this law.
The panel has also said the government should have no role in monitoring of Corporate Social Responsibility (CSR) expenditure by corporates and this should be the job of their respective boards.
Under the new companies law, certain class of profitable entities are required to shell out at least two per cent of their three-year annual average net profit towards the CSR activities. The first year of implementation was last financial year (April 2014-March 2015) and compliance reports would be available by the end of this year.

According to the committee, differential tax treatment for expenditure on various CSR activities may create unforeseen distortion in allocation of funds across development sectors.
"The (company) board's decision could be guided more by tax savings implications rather than compelling community social needs. The committee therefore feels that there should be uniformity in tax treatment for CSR expenditure across all eligible activities," the report said.
At present, certain activities such as contribution to the Prime Minister's National Relief Fund qualify for tax exemption.

The panel, chaired by former Home Secretary Anil Baijal, was set up by the Corporate Affairs Ministry to suggest steps for improved monitoring of CSR spending.

According to the panel, leniency may be shown to non-compliant entities in "initial two/three years to enable them to graduate to a culture of compliance" since these years would be a period of learning for all the stakeholders.
This liberal view can be taken at least for smaller companies, it added.
"Government should have no role to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies," the panel said in its report submitted to the Ministry.
The boards/CSR committees and the management are sufficiently empowered to engage any external firm, if they so require, it added.

As per the report, the boards and the CSR committees should be monitoring their companies' social welfare spending.
"The existing legal provisions like mandatory disclosures, accountability of the CSR committee and the board, provisions for audit of the accounts of the company etc, provide sufficient safeguards in this regard," it added.