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Non-Profit Organisations (NPOs) can be registered in Pakistan under different provincial and federal laws.
A majority of the NPOs are registered under the Societies Registration Act 1860, followed by the Trust Act 1882, the Social Welfare (Agencies and Control), Ordinance, 1961, and Section 42 of Companies Act 2017.
After the 18th amendment, registration, regulation and legislation regarding the subject matter now falls under the domain of the respective provincial governments with the exception of section 42 non-profit companies.
However, the federal government still exercises its authority in matters relating to federal taxes, security and foreign funding.
In terms of requirements that NPOs are expected to comply with, disparities exist at three levels: between and amongst NPO registration laws, between NPO registration laws and tax laws, and between administrative regulations issued by the government and ground realities of the NPO sector.
A preliminary examination of comparative annual reporting requirements under different NPO registration laws reveal striking contrasts between them.
While the Companies Act 2017 contains a long list of requirements that section 42 companies need to comply with, requirements in other laws are minimal.
The newly proposed ‘Associations with Charitable and Not for Profit Objects (Licensing and Corporate Governance) Regulations 2017’ are poised to further increase the compliance requirements for section 42 companies.
Proposed regulations require development of comprehensive policies, internal controls, performance appraisals, maintenance of several registers, along with several administrative permissions from the SECP.
A preliminary examination of comparative annual reporting requirements under different NPO registration laws reveal striking contrasts
On the other side, Trusts are only required to have their annual accounts audited while Societies are required to only file a list containing names, addresses and occupations of their governing body members once in a year.
Whereas, Social Welfare Organisations are required to maintain accounts, several registers and publish an annual report.
When compared to other registration laws, the Companies Act 2017 is the most stringent and resultantly, the least number of NPOs are registered under it.
Moreover, the Companies Act 2017 is the only law that is periodically updated, reviewed and tailored so as to keep it relevant with the fast changing external environment.
Other laws have neither been updated nor reviewed for quite some time thereby raising serious questions about their effectiveness.
In future, the existing void between different NPO registration laws is likely to expand further when provinces decide to bring forth amendments to these laws.
There also exist several conflicting requirements between NPO registration laws and tax laws.
At the very outset, the Income Tax Rule 213 requires the quorum for governing body meetings of an NPO to be minimum four or one-third of the total members, whichever is greater.
However, the Companies Act 2017 allows for registration of a section 42 company with minimum three directors and in such cases, quorum of minimum four members can’t be complied with unless the organisation decides to increase its membership.
Similarly, Rule 213 requires NPOs’ governing document to contain certain specific provisions relating to quorum, amendments, maintenance of bank account, dissolution, surplus funds, etc. However, the language and terminologies used in different NPO Registration laws is quite different from that required by tax law.
Furthermore, the tax law requires NPOs’ governing document to provide for restriction on surplus funds up to 25pc of annual receipts. As opposed to the tax law, NPO registration laws do not require such restriction on surplus funds.
Therefore, practically speaking, NPOs have to amend their governing documents to be in compliance with tax laws. Otherwise, they face the risk of losing their NPO status.
There are also several disparities between the administrative regulations issued by the government from time to time and the ground realities of the NPO sector.
To begin with, if an NPO receives foreign contribution, irrespective of its location or its registration law, it is required to be registered with the Economic Affairs Division (EAD) and thereby undergo repetitive processes despite already being registered under a valid registration law.
Moreover, a recent amendment to section 100C of the Income Tax Ordinance, 2001 capping the ‘Management and Administrative Expenditure’ at 15pc of total receipts is in conflict with the provisions of the MoU that local NPOs (receiving foreign contributions) sign with the EAD.
According to the provisions of this MoU, administrative expenditures are required to be capped at 30pc.
Chief among the reasons for such conflicting requirements and disparities is the lack of coordination between different government departments, both at the federal and provincial level.
The absence of a centralised registration system as opposed to the present decentralised system also adds to confusion as no one can claim with certainty how many NPOs currently operate in Pakistan.
Last but not the least, a poor knowledge of ground realities, lack of willingness, interest and our tendency to ‘pass the buck’ are other important factors responsible for such conflicting requirements.
If not addressed immediately, such confusions shall continue to undermine the NPO’s ability to contribute to social development as resources get tied up thereby increasing the administrative costs.
There is an urgent need for policy intervention from the top governmental level.
The writer is a Manager (Certification) at the Pakistan Centre for Philanthropy
Published in Dawn, The Business and Finance Weekly, August 7th, 2017
