Are Corporate Firms Taking The Easy Way By Contributing CSR Money To Schemes Like PMNRF?

Recent analysis on the Corporate Social Responsibility (CSR) spending of companies has turned many eyes to a figure that suddenly popped up four times. Contributions towards Schedule VII (IX) of Companies Act 2013 that includes Prime Minister’s National Relief Fund (PMNRF) saw the highest increase in 2015-16 as compared to the previous year according to a report prepared by Prime Database.

Schedule VII (IX) includes contribution to PMNRF or any other relief fund or other funds set up by central or state government for socio-economic development and relief.

In comparison to previous year, expenditure under Schedule VII (IX) saw the maximum increase (418%) from Rs 167.74 crore in 2014-15 to Rs 868.74 crore in 2015-16. “While there is no clear mention of contribution towards specific schemes under Schedule VII (IX) in every annual report we analysed, majority funds were seen to be directed towards PMNRF,” said Pranav Haldea, Managing Director of Prime Database.

While last year Schedule VII (IX) accounted for only three percent of total CSR expenditure, this year the amount shared 10% of the total spending. Experts in the CSR sector are trying to understand the reason behind the sudden addition of Rs 701 crore to the government pool from the CSR funds.

While CSR activities are not eligible for any kind of tax deduction, contributions to different organisations, causes and schemes make corporate firms eligible for tax deductions. PMNRF provides for a tax deduction of 100% on donations. This certainly can be one of the reasons.

“The PMNRF in many ways is an easy way to fulfill the CSR mandate. The 100% tax deduction, acceptance as a valid approach to spend the CSR fund as per the section 135, and limited transaction cost, makes it ideal for companies to use this channel. Also, PMNRF is very good option for companies that do not have a very huge CSR budget. These companies can avoid spending time on soliciting proposals, evaluating them, implementing and monitoring the programme etc. Also, where for other 80G organizations the deduction is only 50%, the donation to PMNRF is eligible for 100% deduction,” said Vijay Ganapathy, Partner and COO at Thinkthrough Consulting, a CSR consulting firm.

Under the CSR mandate government asks for various process driven details from corporate firms. “The fact that it is an easy way out has a big role in seeing the hike in these figures. Corporate firms are not very familiar with NGOs and thus are reluctant to spend money with them. Lack of knowledge, manpower and bandwidth also make companies averse. In such a situation if there is a trouble-free option, they prefer it. However, this in the long run it a risk to the over-arching aim of getting engaged with the community by simply passing the responsibility on PMNRF,” said Pradeep Mahtani, CEO, HelpYourNGO.

The mandate of CSR envisions a lot beyond merely corporate firms spending their two percent profits on social activities. This easy way of fulfilling the CSR mandates may pose a threat to broader vision of CSR.

“Under Income tax Act 1961 CSR is not a business write-off. Therefore most companies prefer to contribute to their foundation or NGOs having 80G tax deduction certificate. The PMNRF mainly provides relief during disasters and calamities like flood, famine or earthquake. While contributing to PMNRF fulfills CSR compliance, it defeats the very objective of CSR to promote development, sustainability and shared value,” said legal philanthropy expert Noshir Dadrawala.

Adding to it, Dr Rashneh Pardiwala, Founder & Director, Centre for Environmental Research and Education (CERE) said, “The CSR spend figures certainly prove that companies are adopting the safest path of least resistance by donating towards the PMNRF. The tax deduction is an added benefit to abdicate from their responsibilities to address and truly engage with pressing environmental and social problems. The spirit of the CSR mandate is being lost with companies not directly partnering with their stakeholders and communities to work hand-in-hand to undertake long term initiatives. This short-sighted “cheque book philanthropy” won’t drive systemic changes which are required to improve the situation at ground zero.”

Public sector units (PSUs) had the major share of contributions in these schemes as compared to private sector companies.

PSUs contributed over a whopping 69% towards Schedule VII (IX) schemes. “Although there is nothing officially declared, we often come across oral stories from our sources in PSUs about government’s insistence on contributing to these schemes like PMNRF. PSUs being semi -government bodies tend to put their CSR funds in such pools,” added Dadrawala who is the CEO of Centre for Advancement of Philanthropy (CAP).

A High Level Committee constituted by the Ministry of Corporate Affairs in its report in September 2015 had suggested having uniform tax treatment to all CSR activities. “Differential tax treatment for expenditure on various activities covered under Schedule VII may create unforeseen distortions in the allocations of CSR funds across development sectors. Boards’s decision could be guided more by tax saving implications rather than compelling community social needs. The Committee therefore feels that there should be uniformity in tax treatment for CSR expenditures across all eligible activities,” read the report prepared under the chairmanship of Anil Baijal, former secretary to Government of India.

Uniform tax treatment to all activities carried under the ambit of CSR may serve as a stimulator to fair selection of projects by corporate firms. “I think unless we have a very strong argument for one social development issue as compared to other, all the social causes should have same tax benefits,” said Ganapathy.

Though the amount to flow in the CSR sector is estimated high, the actual spending turn out to be far lesser. Changes in policies that motivate real change with involvement of all the stakeholders would be the key in development of all.

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The CSR Journal Team