Public Benifit

Organizations
Status and Obligations
Under
Changing laws and scanrio
Objectives of the discussions
• To discuss various laws relating to registration of an
organizations
• Consequnces of changing senario for Not for Profit
Organizations under counter terrisom strategay and money
laundery laws.
• Increasing restrictions and documentry requirements by the
goverment
• Issues and reporting ralated to Taxation
• Roles and obligations as Withholding Agents.
Some Facts
• Pakistan ranks 116 out of 176 countries on the Corruption Perception
Index reported by Transparency International .
• Unfortunately, the cases of dubious activities on the part of NGOs
abound, and the Securities and Exchange Commission of Pakistan has
revoked the licenses of 240 non profits under Section 42(4) of the
Companies Ordinance 1984 in the last 4 years.
• As per study by the Johns Hopkins University estimated that there
were 45,000 active non-profit organizations in Pakistan, the largest
number of which (46%) were involved in religious education. The
University has also estimated that the sector has a combined income
of 16,400 million rupees.
Transperency can win the
confidence...
• An important challenge faced by NGOs today is the increasing trust deficit on the part of its
stakeholders due to rising frequency of scandals involving NGOs. These scandals can
negatively influence the public image of the NGO sector
• Genuine NGOs should take proactive measures by maintaining records that can ensure their
credibility.
• The website of any NGO serves as a publicly accessible platform to share information related
to its mission, activities, and performance.
• three aspects of NGO accountability:
• upward accountability to its donors,
• downward accountability to its beneficiaries, and
• internal accountability to its staff.
• The website of any NGO offers a means of exchanging information between the organization
and its stakeholders, and hence it can serve the need to provide upward, downward, and
internal accountability.
Different laws under which a social sector
organizations can register in Pakistan.

(1) The Societies Registration Act, 1860;

(2) The Trusts Act, 1882;
(3) The Voluntary Social Welfare Agencies Registration & Control
Ord.1961
(4) The Companies Ordinance, 1984;
(5) The Religious Endowment Act, 1863;
(6) The Charitable Endowments Act, 1890;
(7) The Mussalman Wakf Validating Act, 1913;
Different laws under which a social sector
organizations can register in Pakistan.
(9) The Mussalman Wakf Validating Act, 1930;
(10) The Charitable and Religious Trusts Act, 1920;
(11) The Income Tax Ordinance, 1979;
(12) The Income Tax Ordinance, 2001;
(13) The Cooperative Societies Act, 1925;
(14) The Industrial Relations (Trade Unions) Ordinance, 1969;
(15) The Registration Act, 1908;
(16) The Charitable Funds (Registration of Collection) Act, 1953;
(16) The West Pakistan Industrial and Commercial Employment (Standing Orders)
Ordinance, 1968; and
(17) The West Pakistan Shops and Establishments Ordinance, 1969.
The Societies Registration Act,
1860
• This is the oldest registration law, and was promulgated by the British.
• This was created largely to regulate professional, scientific and fine arts activities and was extended
later on to encompass charitable and social organizations as well.
• Registration under this law is also open to organizations for mutual benefit, such as clubs and residents’
association.
• Registered society and as an artificial juridical person, which means it can enforce its rules against its
members, sue and be sued in its own name, own property and keep accounts in the bank in the name
of the society.
• The control of the property vests in the Managing Committee and not the members. In addition, if any
judgement is passed against a person on behalf of the society, the judgement can only be enforced
against the property of the society, not against the person.
• The reporting requirements are limited to the list of the governing body members being filed with the
Registrar.
• Basic accounting records of receipts, assets and expenditure are to be maintained and audited by a
qualified auditor. These with a statement of its affairs must be presented to the members in an annual
general meeting.
The Voluntary Social Welfare Agencies
(Registration and Control) Ordinance, 1961
The Ordinance was conceived for controlling the grass roots level organizations
providing welfare services to those in need.
• The registration authority lies with the Directorate of Social Welfare. This ordinance
is based on the idea that the “poor and deprived” in society need institutional,
rather than only charitable, support.
• The Ordinance requires that all organizations engaged in social welfare or charitable
works must be registered with the Social Welfare Departments
• Registration is mandatory for organizations working in, and seeking funds from the
government for any one of the twelve specified areas. The government has the
discretionary right to dissolve an agency through due process or replace the
governing body arbitrarily.
• The reporting requirements are strict and require that even small organizations
submit annual reports, audited accounts, statement of receipts and list of members.
Companies Ordinance, 1984
Section 42 permits the registration of a Company for promoting commerce, art, science, religion,
sports, social services, charity or other useful object.
• The procedure is cumbersome, as it requires a two-stage mechanism, one centered in Islamabad
for the license, and the second, the actual registration, at the regional offices located in the
provinces.
• Registration confers on organizations the status of a non-profit company. clearly stating in all its
correspondence, that it is a “public company registered limited by guarantee under section 42 of
the Companies’ Ordinance, 1984".
• These Companies must have a minimum of 7 members and directors.
• The term of office of the Chief Executive Officer must be for not more than three years, similar to
that of the directors.
• One-thirds of the Board is re-elected by rotation every third year.
• Bookkeeping and audit standards are at an internationally comparable level.
• All documents filed with the Registrar of Joint Stock Companies are available for public scrutiny on
payment of fees.
The Trusts Act, 1882

• The Trusts Act provides legal cover for private acts of public charity, and
allows the creators of the trust tremendous flexibility in their
operations.
• The procedure for the creation of the trust is very simple. A mere
declaration on a stamp paper will ensure creation.
• Registration is optional and not mandatory.
• The Act has also been used to establish public trusts and this has been
vindicated through case law.
The Charitable Endowments Act,
1890

• The Act grants authority to the Government to appoint a Treasurer for

better financial management of Trusts, thus ensuring that the
property of any Trust, which is in financial difficulty, is ensured.
The Religious Endowment Act,
1863
• The Act was created to relieve the Boards of Revenue from managing
religious trusts and buildings and reverting authority to the Trustees
and Boards of Governors.
• No organization can be registered under this Act.
• The Act only recognizes the existence of such Trusts, provides for how
they are to be managed and regulates their activities.
There is no unified set of laws that governs the non-
profit sector in Pakistan;
those that are applicable to NGOs include many
ambiguities, and some need updation.
Pakistan Centre for
Philanthropy (PCP)
• PCP is a designated Certification Agency by the Federal Board of Revenue
(FBR), Government of Pakistan December 18, 2003.
• In accordance with the section 2(36) of Income Tax Ordinance, 2001, Non
Profit Organizations working in Pakistan are required to seek approval of
Commissioner Inland Revenue to be recognized as not for profit.
• Registered NPOs can avail other tax benefits including tax credit and
exemption as well.
• PCP conducts performance evaluation of Non-Profit Organizations on
behalf of FBR and certifies that NPOs meet with the desired requirements
of certification standards (notified by FBR) in the areas of internal
governance, financial management and programme delivery.
Database of NGOs
• The sampling framework is not available to researchers while the total number and registration
statuses of such organizations are not fully known.
• NGOs can register in different ways and under different authorities, and therefore there is no
centralized data on these organizations.
• It is necessary to either synchronize all the data from the various registration authorities in a
single publicly and digitally retrievable portal, or to establish a single central registration body to
regulate NGOs.
• There is no well-structured system through which NGOs can share information; consequently,
there is no mechanism for NGO disclosures through which stakeholders can digitally retrieve
information on key parameters.
• Efforts are in progress to institutionalize the monitoring of NGOs, such as the Pakistan Center for
Philanthropy (PCP), and certifies the status of NGOs; however, such assessments are voluntary.
• The Government of Pakistan is taking the necessary steps at a managed pace, and as a first
attempt to regulate NGOs has made tax exemption status declarations by the Federal Board of
Revenue conditional upon earning a certificate of good governance from the PCP.
Added Reporting Requirements
• The Economic Affairs Division (EAD) asks International NGOs to explain
their plans. It then invites comments from the Ministry of Law, Ministry
of Finance and any other relevant ministries (such as the Ministry of
Education).
• The EAD role is strategic, considering an NGO’s proposals within the
wider development framework to coordinate activities of government
and NGOs, minimize duplication of effort and focus on unmet needs
• NGOs, which benefit from tax exemptions, are required to submit annual
audited accounts, a list of donors and beneficiaries and other financial
information to the Federal Board of Revenue.
 Role of EAD
• Any organization registered outside Pakistan and any organization
registered within Pakistan and desirous of utilizing foreign economic
assistance will need prior registration with the government.
• Foreign economic assistance includes money, services and goods which
emanate from outside Pakistan. The government department for the
purpose will be the Economic Affairs Division.
• The registration of all NGOs receiving foreign contribution is the mandate of
the EAD, the government of Pakistan, under the NGOs Policy 2013.
• The application for registration will be accompanied by such documentary
information as may be specified by the government and will be shared with
and vetted by the Ministry of Interior, the provincial governments and/ or
local governments and other relevant stakeholders. The applications shall
New Tax Laws for NPOs
Prior to Finance Act 2017, non-profit organizations, trusts and welfare institutions enjoyed
100 percent tax credit equal to the tax payable subject to fulfillment of the following
conditions:
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid; and
(c) withholding tax statements for the immediately preceding tax year have been filed.
Through Finance Act 2017, a new condition (d) has been added for availing this credit,
which reads as under: (d) the administrative and management expenditure does not exceed
15 percent of the total receipts.
Moreover, surplus funds of NPOs if over and above 25pc of total receipts during the year
will be taxed at a rate of 10pc. This will be difficult to comply with as a rule and therefore
many NPOs will be required to pay taxes on such funds. If NPOs do not comply they will be
liable for corporate tax at 30pc.
The government’s new law under the Finance Bill loading new
taxes speaks volumes of government’s lack of understanding
of the work, struggle and contributions of NPOs in Pakistan.

We believe the government’s definition of NPOs does not

consider the diversity and nature of its work in Pakistan.

It is disturbing to read the new tax amendments as they

seriously infringe upon the autonomy of NPOs and clearly aim
to stifle its independent voice in Pakistan.
What a joke!
The government is taxing NPOs at par with Multinational Companies.

Edhi Foundation, The Citizens Foundation, and Aurat

Foundation, etc,
will be treated at par with
Coca Cola, Nestle, WALL’s and Pepsi Cola.
Income Tax Ordinance
• The Income Tax Ordinance, 2001 has for the first time introduced the term
“non-profit organization”. The definition as contained in sub-section 36 of
section 2 of the Ordinance and amended by the Finance Ordinance, 2002
states:
• “non-profit organization” means any person -
a) established for religious, charitable, educational, welfare or developmental
purposes or for the promotion of amateur sport;
b) which is registered under any law as a non-profit organization and in respect of
which the Commissioner has issued a ruling certifying that the person is a non-
profit organization for the purposes of this Ordinance; and
c) none of the income or assets of the person confers, or may confer a private
benefit on any other person.”
Charitable Purposes
Since the term “charitable purposes” had not been defined in the
2001 Ordinance, this was introduced through an amendment
contained in the Finance Ordinance, 2002 by the addition of clause 11
(A) in Section 2 which reads,

(11 A) “Charitable purposes” includes relief of the poor,

medical relief and the advancement of any other object of
general public utility”.
Exemptions of Taxes for NGOs
• Any income of a trust, welfare institute, or non-profit organization from donations,
contributions, subscriptions, property, investments in securities, and “income from
business” is exempt from tax if the income was spent towards the objectives of the
organization.
• Income from investments, grants received from the federal or provincial government
or property held under trust or other legal obligations for religious or charitable
purposes is exempt.
• Income received by a religious or charitable institution from voluntary contributions
which apply solely to the religious or charitable purposes of the organization is exempt.
• Income of non-profit educational institutes established solely for educational purposes
is also exempt if the income is applied to its educational purposes and not given to any
of its members.
Income Tax
• What is NPO under the Income Tax Ordinance, 2001
• Understanding of few important provisions of the Income Tax Ordinance, 2001 (relevant to
NPOs)
• Conditions to claim 100% tax credit
• How to obtain withholding exemption certificate to avoid cumbersome procedure of refunds
• Responsibilities of NPOs on account of withholding of Tax
• Identification of transactions not subject to withholding of tax
• Filing of monthly and Annual Withholding Statements
• Filing of Annual Income Tax Return
• Refund procedure
• Handling departmental notices
• Records to be maintained by NPOs
• Penalties and prosecutions
Sales Tax
• Introduction to Value Added Tax (VAT) and its mechanism for goods and services
• VAT system and Sales Tax Laws in Pakistan
• Scope of Sales tax on Goods & Services
• Withholding responsibilities of NPOs under:
• The Sales Tax Act, 1990 The Sindh Sales Tax on Services Act, 2011
• The Punjab Sales Tax on Services Act, 2012
• The KPK Finance Act, 2013
• The Balochistan Sales Tax on Services Act, 2015
• The ICT sales tax on Services Ordinance, 2001
• The Federal Excise Act, 2005
• Responsibilities of NPOs providing services taxable under the Provincial Sales Tax Laws
• Responsibilities of NPOs selling goods taxable under the Sales Tax Act, 1990
• Handling departmental notices
• Record keeping including debit & credit notes
• Penalties and prosecutions
Filing Tax Returns
In case you are doing business in Pakistan or earning taxable salary income
or under the income tax law require to file your return, it will prevent you
from any penalty or additional tax if you file your tax return within the
stipulated time.
Following persons are required to file their tax returns in Pakistan:

1. every company
2. every person (other than a company) whose taxable income for the year
exceeds Rs.400,000
3. any non-profit organization or any welfare institution
4. any person not covered by above categories but...
1. owns immovable property with a land area of 250 square yards or more or owns
any flat located in areas falling within the municipal limits existing immediately
before the commencement of Local Government laws in the provinces; or areas in
a Cantonment; or the ICT.
2. owns immoveable property with a land area of five hundred square yards or
more located in a rating area;]
3. owns a flat having covered area of 2000 square feet or more
4. owns a motor vehicle having engine capacity above 1000 CC;
5. has obtained National Tax Number
6. is the holder of commercial or industrial connection of electricity where the
amount of annual bill exceeds 500,000 or
7. is a resident person registered with any chamber of commerce and industry or
any trade or business association or any market committee or any professional
body including Pakistan Engineering Council, Pakistan Medical and Dental
Council, any Provincial Bar Council, ICAP, ICMAP.
Benefits of Becoming Filler
1. So first advantage is you are discharging your obligations and you are not in
fault. This may save you on many occasions.
2. You will save half taxes on your bank transactions as compared to those who
are non fillers.
3. You will save half of the token taxes as compared to non fillers.
4. You will save on registration and transfer of vehicles.
5. You will have to pay less taxes on sale/purchase of Property.
6. If you are in business, With holding taxes will be deducted on your invoices will
be less as compared to non fillers.
7. Tax deducted at source by Banks (On profits) will be 10% if you file the return
otherwise it will be 17.5%. So you will save 7.5% Taxes on profit earned from
bank deposits.
 Tax Applicable
Activity
Non-Filers Filers
Banking Transactions
Withholding on Cash Withdrawal over
a 0.6% 0.3%
Rs.50,000

Withholding on Bank Transfer, Cheque,

Demand
b 0.4% 0%
Draft, Purchase Order exceeding
Rs.50,000
Penalty for not Filling Tax
Returns
If you fall in any of the above category, you are legally bound to
submit your tax return. In case the return is not submitted or
submitted after the due date, the following penalties shall be
chargeable.
• Such person shall pay a penalty equal to 0.1% of the tax
payable subject to a maximum penalty of 50% of the tax
payable
• provided that if the penalty worked out as aforesaid is less than
twenty thousand rupees or no tax is payable for that tax year
such person shall pay a penalty of 20,000 rupees.
Acting as With-holding Tax
Agents
Withholding agents include businesspersons, consultants, exporters,
companies, partnerships firms, Organizations and government
departments.
• Every withholding agent (person obliged to collect or deduct tax at source)
collecting or deducting tax under the provisions of the Income Tax
Ordinance, 2001 is obliged to issue certificate of tax collected or deducted,
to the person from whom such tax has been collected or deducted.
Monthly and annual statements
of tax collected or deducted
• [Rule 44 and 73 of the Income Tax Rules, 2002]
• Every withholding agent, under the provisions of Section 165 of the Income Tax
Ordinance, 2001, is required to submit necessary details and information after each
month and annually.
• Monthly Statement - A single consolidated statement for each month is to be
furnished by a withholding agent within 15 days from the end of the each month in
the prescribed form set out in Annex-II accompanied with evidence of deposit of tax
collected or deducted to the credit of the Federal Government.
• Annual Statement (for the period July to June) is also required to be furnished by
the withholding agent obliged to deduct tax from salary under section 149 of the
Income Tax Ordinance, 2001 in the prescribed form set out in Annex-III on or before
31st August of every year.
E-Filing of Returns and Annual
Statments
E-filing of monthly and annual statements is mandatory where the
withholding agent is:
1. Federal Government;
2. A Company; or
3. An Association of persons.
Reconciliation –
Every withholding agent, wherever required by the Commissioner, is
obliged to furnish a reconciliation of the amounts mentioned in the annual
and monthly statements with the amounts mentioned in the return of
income, statements, related annexes and other documents submitted
 Non-compliance of the provisions of Income Tax
Ordinance, 2001 relating to default ;

1. in collecting or deducting tax at source,

2. depositing the tax collected or deducted and
3. filing of monthly and annual statements of tax

attracts multiple consequences.

Penalties for failure to furnish
statement(s)
Any person responsible for collection or deduction of tax at source as a
withholding agent, without reasonable excuse:
• fails to collect or deduct the tax is liable to a penalty of Rs. 25,000 or
10% of the amount of tax involved, whichever is higher;
• fails to deposit the tax collected or deducted within the time allowed for
this purpose is liable for a penalty of Rs. 25,000 or 10% of the amount of
tax involved, whichever is higher; and
• fails to furnish, within the time allowed for this purpose, any
statement(s) of tax collected or deducted is liable for a penalty of Rs.
2,500 for each day of default subject to a minimum penalty of Rs. 50,000
and maximum penalty of 25% of the tax payable;
 Conclusions
• Incresing Documentry requirements.
• Tightening laws, rules and regulations.
• Complex procedures involved in reporting.
• Extensive details of members and managining committees.
• Multi-layer monitoring and servilance.
• Ensuring merit and transperency in activties.
• Shared responsibilty of Members, Directors, Managing Committees and
employees of an organization.
• Pakistan needs NGOs that are professional and committed to indigenous
culture and philosophies. Such NGOs should have a very motivated team to
head and manage these organizations instead of making it a family business.