The high-level committee set up by the government on monitoring CSR activities has said that the government should have no role in monitoring of Corporate Social Responsibility (CSR) expenditure by corporates and this should be the job of their respective boards and managements.
Further, the committee headed by former home secretary Anil Baijal, has suggested uniform tax treatment for all CSR activities carried out under the new Companies Act while recommending leniency towards non-compliant companies in the initial 2-3 years of the implementation.
According to the new Companies Act, certain classes of profitable entities are required to shell out at least two per cent of their three-year annual average net profit towards the CSR activities. Last fiscal 2014-15 was the first year of implementation of the provision and compliance reports for the same would be available by the end of this year.
“CSR should not be interpreted as a source of financing the gaps in inclusive growth. Use of corporate innovations and management skills in the delivery of public goods is at the core of CSR implementation by the companies,” the six-member committee said while adding that since the initial period is the learning phase, CSR should be reviewed after three years.
Ruling out the need to monitor the CSR spend by firms, the panel said that the existing principle of ‘comply or explain’ is sufficient for the time being and “the government should have no role to play in engaging external experts for monitoring the quality and efficacy of CSR spend. The boards and the management are sufficiently empowered to engage any external firm if they want.”
According to the committee, differential tax treatment for expenditure on various CSR activities may create unforeseen distortion in allocation of funds across development sectors wherein the board’s decision could be guided more by tax savings implications “rather than compelling community social needs. The committee therefore feels that there should be uniformity in tax treatment for CSR expenditure across all eligible activities”. Currently, certain activities such as contribution to the Prime Minister’s National Relief Fund qualify for tax exemption. Seeking more clarity on applicability of the CSR provisions on foreign companies, the panel urged the government to look more deeply into the issue even as it recommended that section 8 — non-profit firms — should be exempt from the compliance.