FBR probes tax credit eligibility of non-profit organisations

KARACHI: The Federal Board of Revenue (FBR) has started afresh evaluation of non-profit organisations (NPOs) to verify if they qualify for tax credit after some of them appear deviating from their mandate and that entails normal taxation, sources said on Wednesday.

The sources said the 100 percent tax credit is allowed under the income tax laws. Corporate Regional Tax Office (CRTO) Karachi has formed a scrutiny committee to appraise the performance of NPOs for the grant of tax credit.

The new committee has been asked to evaluate performance in cases of those NPOs, which were recommended by the Chief Commissioner CRTO and previous committees.

The sources said the tax authorities rejected tax concessions to several NPOs and welfare institutions due to changes in the laws and detection of tax avoidance by such organisations. They said the income of NPOs, trusts or welfare institutions has been allowed a tax credit equal to 100 percent of the tax payable under Section 100c of the Income Tax Ordinance 2001. However, this concession is subject to conditions, including returns filing, submission of withholding tax statement, and administrative. Administrative and management expenditures should not exceed 15 percent of the total receipt.

The sources said main changes were brought related to taxation of NPOs through Finance Act 2017.

They said the prescribed limit of 15 percent on administrative expenses was imposed to stop misuse of receipts/donations received by NPOs and discourage them from spending such amount on huge administrative salaries and vehicles. The condition of 15 percent was, however, not applicable on charitable and welfare activities of the non-profit organisation, which commenced for the first time within last three years and total receipts of NPO during the tax year were less than Rs100 million.

The sources said the condition of return filing and submission of withholding tax statement was also made mandatory through Finance Act, 2017. The condition was imposed in order to determine the source of donations and funds transferred to such NPOs.

The sources said the NPOs and charitable organisations were used for parking of black money and money laundering due to no question on source of funds and donations in the past.

They said the tax authorities are now assessing the income tax returns filed by NPOs for tax year 2018 to check the transactions made since July 1, 2017.

The sources said the evaluation was also initiated to determine that none of the assets of trusts or welfare institutions was used to benefit donors or family, children or the maker of the institutions.

In case any detection made in this regard then such benefit would be added to the income of the donor to make him liable for income tax payment.