Karachi Tax Bar Association proposes removing surplus fund tax and administrative expense restrictions on non-profit organisations
The Karachi Tax Bar Association (KTBA) has proposed significant tax relief measures for non-profit organisations (NPOs) in the Budget 2026-27, arguing that the existing tax framework restricts welfare activities and creates financial challenges for charitable institutions.
In its budget proposals, KTBA recommended the abolition of Sub-section (5) of Section 100C of the Income Tax Ordinance, 2001, which imposes a 10 per cent tax on the surplus funds of non-profit organisations.
The association stated that many NPOs operate essential welfare projects, including hospitals, schools and other educational institutions, which require substantial capital investment for infrastructure development, construction of buildings, procurement of equipment and expansion of services.
KTBA told PkRevenue, these capital-intensive projects are often implemented over several years, making it impractical for organisations to utilise all available funds within a single fiscal year. It noted that non-profit entities must retain surplus funds to finance long-term projects and ensure continuity of public welfare initiatives.
The tax bar argued that the levy on surplus funds discourages charitable organisations from accumulating reserves needed for future development projects and hampers their ability to undertake large-scale welfare activities.
KTBA, therefore, recommended the complete abolition of Sub-section (5) of Section 100C. Alternatively, it proposed amending the law to exempt surplus funds invested in prescribed government securities or other risk-free investment instruments from the application of this provision.
The association also called for the removal of the administrative expense restriction under Section 100C of the Income Tax Ordinance, 2001.
Under the existing framework, an NPO becomes ineligible for a 100 per cent tax credit if its administrative and management expenses exceed 15 per cent of its total receipts.
KTBA described this condition as excessively stringent, arguing that legitimate administrative expenditures are necessary for the effective management and delivery of welfare services. It maintained that the current threshold could adversely affect organisations engaged in complex and large-scale charitable operations.
The association suggested that instead of imposing a fixed administrative expense cap, the government should introduce alternative monitoring mechanisms to verify the legitimacy and necessity of such expenditures.
According to KTBA, these proposed reforms would provide greater financial flexibility to non-profit organisations, enabling them to expand welfare activities and undertake long-term projects aimed at serving the public interest.
The recommendations form part of KTBA’s broader proposals for Budget 2026-27 aimed at creating a more supportive tax environment for the non-profit sector and promoting sustainable charitable initiatives across Pakistan.
