Chennai: Now, even animals have a reason to dread the taxman.
Thanks to a tax law passed last year, several wildlife groups such as the World Wide Fund for Nature (WWF) and other not-for-profit organizations such as Child Relief and You (CRY) have ceased selling greeting cards, calendars and other products or have spun off their commercial arms to stay tax exempt.
The funds from such sales provided valuable financing for emergencies as well as for lesser-known causes embraced by such conservation groups. These also offered more flexibility in spending than the money received from donations, which are often restricted by the donor to specific causes.
The country’s Income-tax Act defines a charitable entity as one that works in any of these areas: relief for the poor, education, medical relief, and advancement of general public utility. But companies not into any charitable cause were also claiming tax exemption stating that their businesses aided the advancement of general public utility.
Eventually, then finance minister P. Chidambaram, in his 2008 budget, amended the law to state that the “advancement of general public utility” would not be considered charitable if it involved any activity related to trade, commerce or business for a cess, fee or any other consideration.
“When the finance minister (Chidambaram) made his speech in Parliament, he said that genuine charitable organizations will not be affected by this law,” said Ravi Singh, chief executive of the Indian arm of WWF, the world’s largest independent nature conservation group. “But that hasn’t been the case.”
Shishir Jha, a spokesman for the Central Bureau of Direct Taxes, or CBDT, defended the amendment. “In many cases when we rejected their (companies’) application, they went to court and got a ruling in their favour,” Jha said. “This amendment is good news as voluntary organizations should not be raising bills on others.”
Nearly 61,000 charitable entities are registered with the government’s tax exemption unit, including the Board of Control for Cricket in India (BCCI), the world’s richest cricket board.
“Any tax law is a double-edged sword. So is this one as it tries to cut across bogus organizations… On the other hand, real NGOs (non-governmental organizations) cannot carry out commercial activity to support themselves,” said Vikas Vasal, executive director at auditing firm KPMG.
Conservation groups such as WWF and the Bombay Natural History Society, or BNHS, which are registered under the “general public utility” clause for tax exemption, stopped selling their merchandise last year after a circular regarding the change in the tax law was published.
These groups fear losing not just their exemption status, which could lead to the taxation of even donation money, but also the tax incentives offered to their donors.