Go lenient on companies for three years now: Govt appointed Committee

The high Level Committee appointed by the Ministry of Corporate Affairs recommends the government to go lenient on companies for three years on their Corporate Social Responsibility (wp) expenditure. The committee suggested that a review should be conducted after three years.

Recommending going ahead with the current policy of “comply or explain”, the committee stated that in case of non-compliance, “leniency may be shown against the companies for non-compliance in initial two/ three years to enable them to graduate to a culture of compliance. This is being recommended because initial three years will be a period of learning for all the stakeholders.”

It also suggested that “government should have no role to play in engaging external experts for monitoring the quality and efficacy of wp expenditure of companies. The Boards/ wp Committees and the management are sufficiently empowered to engage any external firm, if they so require.”

The high level committee chaired by Anil Baijal, former secretary to the Government of India submitted its report on September 6. The committee was formulated to suggest measures and methodologies to monitor implementation of the new wp policies in the country according to section 135, Companies Act 2013.

India is the first country to have mandated wp spending on companies with net worth of Rs 500 crores or more, or turnover of Rs 1000 crores or more, or net profit of Rs 5 crores or more in a financial year. Companies falling under these categories are mandated to spend 2% of their average net profits on social activities.

To motivate companies to undertake their wp mandate genuinely, the committee recommended setting up annual awards.

The committee felt that differential tax treatment for expenditure on various activities covered under Schedule VII may create unforeseen distortions in the allocations of wp 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 wp expenditures across all eligible activities.