Taking note of the concerns of companies, a high-level
panel constituted to suggest measures for monitoring the implementation of
Corporate Social Responsibility (CSR) Rules, 2014, has come up with 24
recommendations which have been uploaded on the ministry of corporate affairs
(MCA) website.
The panel, which was
constituted mainly to look into the monitoring of CSR rules, has taken into
account a number of other concerns raised over the past year by companies as
part of its report.
Pointing out that it
is “premature” to judge the implementation of the rules, the six-member
committee’s report said, “Many of the concerns raised during discussions with
stakeholders seemed beyond the terms of reference of the committee but were
significant enough to be addressed at this stage…”
Sudhir Singh,
partner-risk advisory at PwC India Pvt. Ltd, a financial advisory and
consultancy firm, explained that when the rules were announced, companies had a
number of apprehensions like the fact that the government could suggest penal
action against companies that do not comply. But the committee’s report states
that penalty should not be levied and since it is a unique law, a “learning
period” of two to three years should be granted to all stakeholders.
The CSR rules, under
section 135 of the Companies Act, 2013, mandate companies with a net worth of Rs.500
crore or a revenue of Rs.1,000 crore or a net profit of Rs.5 crore
should spend 2% of average profit in the last three years on social
development-related activities.
But the committee has
reiterated that CSR is not about the spend alone. Headed by Anil Baijal, former
secretary in the ministry of urban development, it has concurred with the
majority of the issues raised by the companies such as the cap of 5% of the
total CSR spend on overheads not being sufficient.
It has recommended
that the figure can go up to 10% of the total spend. Currently, CSR activities
such as contributions to the Prime Minister’s National Relief Fund (PMNRF) get
tax benefits while others don’t. The committee suggests that differential tax
treatment of some CSR initiatives leads to distortion in allocation of funds
and, hence, all activities under Schedule VII of the CSR rules should have
uniform tax treatment. The CSR corpus should not be viewed as “financial
resources” for social and human development because the “resource gap—if
any—could be met by levying extra taxes”, says the report.
“The fact that they
have proposed uniform tax treatment is important. Right now some areas like
PMNRF and skill development attract more tax benefit than others, and this
could create a bias towards certain areas,” said Abhishek Humbad, co-founder
and director, NextGen, a Bengaluru-based CSR consultancy firm.
The report also
points out that the existing provisions on reporting, auditing, selection of
CSR activities or partners are the prerogative of the company’s board or
committee and the government should not intervene.
The CSR rules provide
for firms tying up with agencies like not-for-profits to carry out activities
on the ground. Concerns were raised about how companies will know which agency
to use.
In response to this,
the government, the Indian Institute of Corporate Affairs (under the ministry
of corporate affairs) as well as industry associations like the Confederation
of Indian Industry said they will bring out a list of accredited
non-governmental organizations.
The committee says
the government “cannot and should not maintain a data bank of implementing
agencies”.
It says the selection
of implementing agencies should be left to the board of directors or CSR
committees of the companies. This, according to Neeraj Seth,
director-development advisory services at EY, is good “because it emphasizes
the importance of the board of directors of a company”.
The overall intent of
the recommendations sit well with the law because they are encouraging rather
than prescriptive, she added.
Recognizing the
subjective nature of CSR, the committee has made recommendations which are more
flexible. For instance, the need for an amendment to the CSR rules to include
an “omnibus clause” in Schedule VII of the CSR rules, which detail the
activities that companies may implement as part of CSR. This clause will give a
little flexibility for activities that do not fall directly under the ambit of
the 11 already listed in the schedule such as women’s empowerment, eradication
of poverty, hunger, etc.
Some like Singh of
PwC believe a little more push or encouragement is needed from the government
to get companies to undertake CSR. “There is a strong need for the government
to encourage the participation of those companies that are left out of the CSR
ambit,” he said, adding that since the purpose of CSR is to encourage companies
to do business in a responsible manner, there are many companies which need to
be engaged further to ensure they participate as well.
“Right now, many of
the companies reporting on CSR are those which have had CSR activities in place
for a long time. We need the first-timers to embrace CSR as well to have
overall inclusive growth,” he said.
Plus, as Humbad said,
“The recommendations are in the right direction. But they (the panel) didn’t
have enough data to address all concerns that could arise. It would require
data from two to three years to make detailed recommendations.”
Seth believes “these
are just recommendations. How they will be adapted into the law remains to be
seen”.
-live MINT
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