KARACHI: Karachi Tax Bar Association (KTBA) has highlighted that genuine Non-Profit Organizations (NPOs) are unable to gent benefit of 100 per cent ax credit.
In its proposals for budget 2022/2023, the tax bar informed the Federal Board of Revenue (FBR) that through Finance Act 2017 an additional condition was inserted to avail the benefit of 100 per cent tax credit.
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Also, provision for taxation of surplus funds has also been introduced. The condition debarred the NPO could be from having admin and management expenses of more than 15 per cent of its total receipts.
The legitimately collected funds properly invested in specified securities are subjected to tax.
“These harsh provisions was introduced in the wake of the trust gap between the FBR and the NPO’s whereby certain cases found susceptible of the genuineness or negligent toward compliances,” the tax bar said, adding that the condition was imposed across the board on all NPOs regardless of the fact that nature of some of the NPOs activities is such that it is impossible for them to restrict these expenses under the threshold of 15 per cent.
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This has resulted in many genuine NPOs being unable to claim the benefit of 100 per cent tax credit.
It is recommended that NPO’s should be categorized according to their nature objectives and purposes and not one single standardized rule should be made applicable. The said condition be deleted or a clarification should be issued whereby certain nature of NPO’s are excluded from this condition.
Alternatively, the provision for taxation of surplus funds should not be applicable in case those funds are invested in Federal Government securities.
This will ensure that genuine NPOs are not punished for the compliances under which they have no control.
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The tax bar further informed the FBR that the Rule 214 of the Income Tax Rules, 2002 spells that approval of the Commissioner shall be valid for three years unless withdrawn.
Despite this position as per the Rules, the Commissioner in general issue certificates valid for only one year or even half year.
A clarification is proposed U/s. 2(36) of the Ordinance that approval of Commissioner shall be deemed in conformity with the Rule 214 of the Rules. To bring consistency between the law and the procedures in place.
Entitles not registered as Trust, Society or company. A condition has been imposed a requirement for NPOs to be formed and registered by or under any law as a non-profit organization.
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This has caused hardship to the entities that are not registered as Trust, Society or Section 42 company who yet completely fall within the four corners of Non- Profit
The law should be appropriately amended to exclude this requirement. Following amended words are suggested: “formed or registered by or under any law for the time being enforce”
It is a cardinal principal that income tax law is self-regulated law. Its applicability should not be linked with any other statutory status.
