WHEN Finance Minister Ishaq Dar announced fresh tax measures for thousands of non-profit organisations, he only exposed the government’s utter failure to appreciate a dynamic social network serving Pakistan.
As successive governments have practically abdicated their responsibility towards the citizens in vital areas, notably healthcare and education, Pakistan’s non-profit organisations — NGOs and charitable trusts — have risen to fill the void. Together, the work of these entities has only reinforced anecdotal evidence which suggests that Pakistanis are a generous nation when it comes to aiding charitable causes.
Dar’s announcement in his budget speech in May to slap non-profits with a tax if they spent less than 75 per cent of their annual income on charitable work, misses the point. Slapping a tax on non-profits effectively begins equating their work with other sectors that function for profitable gain.
Slapping taxes on non-profits is not justified.
And associated steps such as capping their administrative costs at 15pc of annual budgets, also smacks of failure to understand the key requirements of this sector. For instance, non-profits dedicated to functions that require heavy expenses on staffing, such as organisations devoted to human resource development, will only find themselves badly hamstrung by virtue of high administrative costs.
On the whole, this measure seems to be just another revenue-raising exercise, undertaken without much thought. Needless to add, Pakistan’s ruling structure has a weak moral case in slapping tax on non-profits when it has made little progress on radically expanding the country’s income tax net, which functions with barely 1pc of the population as direct taxpayers.
In recent years, Pakistan has witnessed a tightening of controls on non-profits in the wake of the arrest of Dr Shakil Afridi, the controversial former employee of a global NGO who led a health campaign that may have supported Washington’s hunt for Osama bin Laden. In the subsequent push to take closer charge of the sector in the post OBL years after the 2011 US raid in Abbottabad, Prime Minister Nawaz Sharif’s government has taken some mind-boggling steps to tighten its hold over non-profits.
While regulating the work of all segments including the non-profit sector must be a legitimate function of any government, the controversial manner in which this has been pursued deserves closer scrutiny. At times, it has appeared that the responsibility for regulation fell in the lap of the federal Economic Affairs Division while on other occasions the interior ministry appeared to be in charge. Exactly how these entities with their existing capacity and focus were to successfully regulate this sector remains a baffling question.
Principally, a regulatory function of the non-profit sector must focus on three key areas — their financial management, internal governance and the ability to deliver programmes for end beneficiaries. Too often, the regulatory exercise has, instead, come across as just a tightening measure without being a forward-looking initiative with the capacity to judge a non-profit on its own merit.
Hence, today there is a danger in Pakistan of the growth of the non-profit sector being stifled at a time when the finance establishment appears too obsessed with a square focus on bricks and mortar. The pursuit of one fancy infrastructure project after another risks overlooking the need to focus where it matters the most — providing badly needed social services to a large number of badly neglected human beings all over Pakistan. A review of the need to regulate this sector must be built upon two equally vital dimensions.
On the one hand, it is important for the authorities to consider the creation of a framework which has the capacity to regulate non-profits. Though the task may be a Herculean one, it has to begin with the recognition that existing structures of the state are just too inadequate for the job at hand. Such a framework ought to have the infrastructure at the federal and the provincial levels to begin regulating the non-profit sector without proverbially throwing the baby out with the bathwater.
On the other hand, the government needs to retreat from its apparent obsession with the sector as an effective enemy of the state. Though the case of Shakil Afridi may have triggered suspicions, the argument is being stretched beyond reason. Ironically, the single most important contribution of non-profits is their ability to reach out to badly neglected people.
Impressive titles such as the Edhi Foundation, The Citizens Foundation, or the numerous trusts associated with large hospitals and educational institutions are just some of the few non-profits working actively to improve human living conditions. The danger is that a ruling structure focused on brick, mortar and concrete may just not have the capacity to know the difference.