The CSR law mandates an expenditure of 2% of net profits by the corporates. However, recent estimates have shown that corporates spent only 30-40% of the amount that was expected to flow in. A deep analysis of the law and the way corporates handle social responsibility could bring out several reasons:
a. Disinterest among the corporates: Many corporates see this as a burden on their manpower and time in a global scenario with tough competition.
b. Nature of the law: More than a dozen amendments in the law since its enactment has hampered its effective implementation. Some anomalies in tax treatment still remain in the law.
c. CSR in monetary value: Companies have been encouraging its employees towards social work which cannot be measured on a monetary scale. Attaching monetary terms would mean companies to reorient their policies to satisfy the monetary norms of the law.
d. Scope of the law: The law mentions activities ranging from eradication of hunger, poverty etc which account to social spending. However, companies spend substantial amounts on employee welfare programs like school and hospital which has not been accounted for.
e. Mandated organisation structure: The law mandates CSR committee which may not be in line with the existing structure in many organisations.
Thus, there still exists a gap between the law and the aspirations of the company towards CSR which needs to be sorted out for its effective implementation. More flexibility in the law could bring more corporates with the ambit of this law and fulfil the purpose of this law.
Ans2:
Ans: CSR spending, even after an year, is subdued meeting only 30%-40% of the 2% target. Primary reasons for it:
a) Ambiguity in activity list: Frequent amendments and addition in CSR makes it difficult for them to pick any particular activity.
b) Ambiguity in taxation: While CSR spends do not qualify for tax deduction, Income tax act provides exemptions on Allowable Business Expenditure(ABE). It open doors for litigation to decide whether an expenditure falls under CSR or ABE as private sector is motivated to put expenditure under ABE and avoid tax.
c) Board requirement and tax exemptions: CSR law mandatorily calls for routing CSR through a trust. Tax exemptions vary across the trust. For e.g. PM relief fund gets 100% exemptions while other gets less. Thus corporate are in dilemma whether to route their CSR through PMRF and save tax or to carry forward their own vision of social activity.
d) Independent CSR Board: The requirement to establish independent board to monitor CSR not only creates an extra burden but also creates a new conflict between CEO and board.
Ambiguity in list seems more of an excuse as the list is continuously expanded, interpreted more generously and none of the listed items were removed. Ambiguity in tax laws is a valid concern that should be streamlined. But corporate can use “Advance ruling” provided in Income Tax law to reduce litigation concerns. Trust, along the platform, should have equal exemptions so that the purpose of CSR is not defeated by cheque payments to PMRF. Board supervision is necessary considering the corporate record and the pressure on CEO to maximise profit. Hence government need to fill the gap while corporate sector should look at CSR from the long term perspective and in their own enlightened self interest.
a. Disinterest among the corporates: Many corporates see this as a burden on their manpower and time in a global scenario with tough competition.
b. Nature of the law: More than a dozen amendments in the law since its enactment has hampered its effective implementation. Some anomalies in tax treatment still remain in the law.
c. CSR in monetary value: Companies have been encouraging its employees towards social work which cannot be measured on a monetary scale. Attaching monetary terms would mean companies to reorient their policies to satisfy the monetary norms of the law.
d. Scope of the law: The law mentions activities ranging from eradication of hunger, poverty etc which account to social spending. However, companies spend substantial amounts on employee welfare programs like school and hospital which has not been accounted for.
e. Mandated organisation structure: The law mandates CSR committee which may not be in line with the existing structure in many organisations.
Thus, there still exists a gap between the law and the aspirations of the company towards CSR which needs to be sorted out for its effective implementation. More flexibility in the law could bring more corporates with the ambit of this law and fulfil the purpose of this law.
Ans2:
Ans: CSR spending, even after an year, is subdued meeting only 30%-40% of the 2% target. Primary reasons for it:
a) Ambiguity in activity list: Frequent amendments and addition in CSR makes it difficult for them to pick any particular activity.
b) Ambiguity in taxation: While CSR spends do not qualify for tax deduction, Income tax act provides exemptions on Allowable Business Expenditure(ABE). It open doors for litigation to decide whether an expenditure falls under CSR or ABE as private sector is motivated to put expenditure under ABE and avoid tax.
c) Board requirement and tax exemptions: CSR law mandatorily calls for routing CSR through a trust. Tax exemptions vary across the trust. For e.g. PM relief fund gets 100% exemptions while other gets less. Thus corporate are in dilemma whether to route their CSR through PMRF and save tax or to carry forward their own vision of social activity.
d) Independent CSR Board: The requirement to establish independent board to monitor CSR not only creates an extra burden but also creates a new conflict between CEO and board.
Ambiguity in list seems more of an excuse as the list is continuously expanded, interpreted more generously and none of the listed items were removed. Ambiguity in tax laws is a valid concern that should be streamlined. But corporate can use “Advance ruling” provided in Income Tax law to reduce litigation concerns. Trust, along the platform, should have equal exemptions so that the purpose of CSR is not defeated by cheque payments to PMRF. Board supervision is necessary considering the corporate record and the pressure on CEO to maximise profit. Hence government need to fill the gap while corporate sector should look at CSR from the long term perspective and in their own enlightened self interest.
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