Best to abolish CSR, just add it to the overall tax

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Updated: Aug 02, 2019 2:04 AM

Since UPA made CSR a mandatory levy and NDA added penal provisions to this, it is now really a CSR-tax.

csr, corporate social responsibility. taxThe UPA ruled that 2% of corporate profits had to be invested in CSR.

When Narendra Modi first came to power, he mocked the Congress by saying that, while many apprehended that he would reduce funding to the MGNREGA job-guarantee scheme – a flagship UPA program – he was too smart to do this. MGNREGA, Modi said, was a living symbol of the UPA’s inability to provide jobs; why would he remove this symbol? That sounded good, but with the NDA also increasing allocations to MGNREGA over the years, it isn’t out of place to ask whether the boot is now on the other foot, that the NDA too needs a job-guarantee scheme because it has failed to provide jobs. What is even odder is how the UPA’s CSR-tax has been cemented by the NDA. Till the UPA came to power and made it Compulsory Social Responsibility, Corporate Social Responsibility (CSR) was voluntary in nature, done by corporates who genuinely wanted to help people or by those who wanted to look like responsible citizens; some did it to soften the opposition from local communities to, say, selling their land to them. The UPA, influenced as it was by the NGO lobby, decided to make it mandatory and ruled that 2% of corporate profits had to be invested in CSR. Certain rules were put in place, so investing in an employees’ welfare fund, for instance, wouldn’t qualify as CSR.

In its wisdom, the Modi government has now added serious penalties for non-compliance apart from deciding that, if corporates don’t spend this money within three years, this has to be transferred to a fund like the PM’s Relief Fund; India Inc has to give reasons for why it never spent the money and its officials could even be fined or imprisoned for not following the law. If this blanket provision wasn’t bad enough, the amendments say “the central government may give such general or special directions … as it considers necessary to ensure compliance”. While we have to wait for the detailed rules to come out, this does seem like an entry to bureaucrats to decide what will and won’t qualify as CSR and, over time, the government can even start deciding what projects will qualify as CSR.

While introducing the amendments in Parliament, finance and corporate affairs minister Nirmala Sitharaman gave it a lofty spin by saying “Gandhiji’s trusteeship principle is that legitimate profit-earning cannot be devoid of social responsibility”, surely the taxes corporates – and individuals – pay are part of this mandatory social responsibility since a large part of these payments are used to provide facilities for the poor? Indeed, while hard-working corporates and individuals pay taxes, governments continue to fritter this away in many forms, from big leakages in social security programmes to funding massive loss-making PSUs like BSNL and Air India. But given CSR is no longer voluntary but is now completely in the nature of a tax, with the government deciding the amount of the levy and with penal provisions for not fulfilling the requirements – including, possibly, where and how the money has to be spent – why not just scrap it and replace it with a higher corporate tax; a cess if the idea is not to share the money with the states. India is now in the august company of countries like Nepal and Mauritius where CSR-spend is mandatory.

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