Dear members,
As per a recent report published in The Wall Street Journal, India has the third largest number of billionaires in the world, with a combined fortune of $ 266 billion, up from fifth rank just a year ago. This news underscores the growing abundance of wealth post the economic liberalisation in India.
While many Indians have prospered enormously postliberalisation, the benefits of the growth have been grossly uneven, and a large part of India continues to cope up with dire poverty. Given its fiscal and budgetary limitations, the Government of India is unable to fund the needs of the masses, and its spending on various programmes achieve less than desired impact on development outcomes for the poor. The introduction of Corporate Social Responsibility is the Government’s endorsement of the need to rely on the critical role played by private philanthropy.
Given the enormous need, it is encouraging to find philanthropy gaining new momentum. The postliberalisation wealth-creators such as Azim Premji, Narayan Murthy and Shiv Nadar have committed substantial amounts, running into several billion dollars towards charity on the lines of Giving Pledge by Warren Buffet and Bill Gates. Their contributions have spurred on an eco-system of new-age charitable organisations maximising impact through strategic collaboration with the donors.
At the same time, there are thousands of small charitable institutions carrying out phenomenal work. As per the recently published India Philanthropy Report 2015 by Bain & Company, the country has added more than 10 crore donors since 2009 and had about 25 crore donors in 2013. India also improved its rank to 69 in 2014 from 134 in 2010 in the World Giving Index (WGI) published by the Charities Aid Foundation.
A question that arises is whether the tax and other policies of the Government are conducive to critically required private philanthropy. It appears that the attitude of the authority is that of distrust influenced by few bad examples. The difficulties are compounded by indifferent, and often corrupt, administration.
The CAG in its Report No. 20 of 2013 states, “Trusts are earning huge profit consistently, after spending meagre expenditure as compared to their total income, and accumulate it as surplus. These surpluses are used for creating fixed assets for earning more profit or are transferred to other trusts rather than for charitable purposes to avoid tax.”
Almost every year, the provisions pertaining to the charitable entities in the Income-tax Act have been amended, which bears testimony to the general mistrust the bureaucracy has towards this sector.
The Tax Administration Reforms Commission (TAR C) in its report submitted last year has commented, “The perceived misuse of voluntary organisations for tax evasion has led the finance ministry to curtail huge tax incentives.”
Unfortunately, this approach of reactionary amendments without a radical overhaul of the system, causes an adverse impact mainly on good charitable organisations. These changes do not take into account massive administrative burden which small charitable institutions are simply not equipped to cope up. At the same time, the bad ones continue to manage/manipulate the system often with the help from pliable administration.
It appears that the magnitude of perceived misuse of voluntary organisations is miniscule in comparison to their contribution to the Nation. Part of the Union Budget 2015 documents, the Statement of Revenue Impact of Tax Incentives under the Central Tax System (Annexure 12) reveals very interesting statistics about charitable entities:
total number of electronically filed returns of charitable entities till 30th November 2014, during FY 2014-15 is 99,076, as compared to 1,06,443 in the previous year
total amount applied by such entities for charitable and religious purposes in India aggregated to Rs. 2,25,472 crore during FY 2013-14, as compared to Rs. 2,00,274 crore in the previous year
total revenue impact arising from deductions u/s. 80G, 80GGA and 35AC is Rs. 1,112.60 crore for the financial year 2013-14, as compared to Rs. 862.60 crore in the previous year.
The total amount applied towards the charitable purpose during FY 2013-14 of Rs. 2,25,472 crore, amounting to approx. 2% of the GDP, nearly matches the Government’s receipts from income-tax revenue. It far exceeds the Government’s revenue expenditure on social services such as education and health at Rs. 25,572 crore. In comparison, the tax concessions to the Charitable Entities result in miniscule revenue loss in comparison.
There is no denying that, the laws and administration applicable to this sector are in need of a complete overhaul. The Financial Action Task Force, an independent intergovernmental body, has flagged risk of criminal and terrorist abuse in non-profit organisations. The Nagpur Bench of the Bombay High Court, while dealing with a PIL case involving a Charitable Trust set up by a newspaper accused of siphoning funds collected for relief for victims of the Kargil conflict, has observed that a legislation is necessary to regulate the contributions collected and monitor their utilisation.
The Second Administrative Reforms Commission mooted a suggestion to have a uniform law for charities and trusts which the Law Ministry is reportedly working on. The TAR C too, has recommended a national database of the non-profit sector to be made available to the public indicating their activities.
The above suggestion can bring about radical changes in the regulation of charitable organisations. The online availability of the financial reports and registration related details of the charitable institutions, on the lines of the MCA portal, will help the following:
Donors will be able to check the status of their 80G registration along with their PAN , the registration under the Foreign Contribution (Regulation) Act, etc.
Greater transparency of their financials will put pressure on the non-functioning charitable organisations and provide an opportunity to take action against such institutions.
The implementation of the Corporate Social Responsibility (CSR) regulations under the Companies Act, 2013 is expected to give further momentum to the philanthropic activities. Let us hope it will also accelerate the process of online national database and bring about greater accountability and transparency about the charitable organisations.
Philanthropy is not a new concept in India. It has been an integral part of our culture and tradition for ages, with a diverse range of community-specific traditions such as Daan, Sewa, Tithes and Zakat. The Government needs to acknowledge the due credit and ensure it acts as a facilitator in channelising collective efforts of the charitable organisations.
The BCAS along with the BCAS Foundation too have been engaged in various philanthropic activities which include relief in times of calamities and campaigning for the right to information which is critical to good governance. I take this opportunity to thank our stalwart leaders who have encouraged, pushed and lead the BCAS to channelise our collective energy towards making positive changes this World.
With warm regards,
Nitin Shingala
