Business Times

New guidelines by the government in taxing NGOs

By Quintus Perera

Even with a mighty disaster like Tsunami in 2004 the government showed stubbornness that prevented the inflow of some assistance for the distressed in the disaster by various means and the most crucial move to exert pressure was to bring in laws to tax the ‘humanitarian assistance’.

There was concern among the NGOs on the seemingly anti-NGO sentiment emanating from the government and indicated that the tax policy towards NGOs which eats into 30% of their funds was apparently excessive. The impact on NGOs was also high in the conflict areas.

Due to the pressure of the government some representatives of NGOs and INGOs met in Colombo and discussed about the taxing of these organizations at the height of the aftermath of the Tsunami disaster. INGO representatives were surprised as such an action was very rare in any country, under such circumstances. Some of the INGOs decided to pull out of Sri Lanka and took the assistance to other Tsunami-affected countries.

After taxes were introduced large consignments of foreign aid for Tsunami from countries were allowed to rot in the airport, no one clearing them. NGO staff also experienced difficulties in obtaining visas at that time.

Now the government has realized the importance of such assistance by NGOs to the poor and needy and thus has issued guidelines for remission of NGO tax payable for any year of assessment commencing on or after April 1, 2011 under Taxation of Non-Governmental Organizations (NGOs) in terms of Section 102 of the Inland Revenue Act No.10 of 2006.

Jeevan Thiagarajah, Executive Director, Consortium of Humanitarian Agencies (CHA) commenting on the new guidelines said that they analyzed section 1.1 and 1.2 of the Guidelines definition of NGO where the definition of NGOs is given under the guidelines.

He said that the new thinking of the authorities is based on the results of their hard work in NGOs carrying out a dialogue for the last six years. He said that it helps to recognize NGOs working on humanitarian issues not limited to conflict or Tsunami for that matter and that these activities should be automatically assessed. He emphasized that the remission recognizes poverty as a disaster, while also recognizing for tax remission work for underserved persons and communities.

They have in addition made a submission to the Tax Commission to consider tax rebates also in the context of non-profit work. These two sections define NGOs as person or a group of persons on a voluntary basis and which is nongovernmental in nature, dependent on grants, donations, contributions or money received from any other means locally or from any foreign country or any foreign or local organization and established or constituted (i) for the provision of relief and services of a humanitarian nature to the poor and destitute, to the sick, orphans, widows youth or children; or generally for providing relief to the needy in times of disaster.

Mr Thiagarajah said that in addition, under Section 2(a) and 2(a)(ii), the Inland Revenue Department has expanded the scope to a broad range of activities which is very welcome. Sections 2(a) and 2(a)(ii) of the guidelines include a wide range of activities such as construction or renovation of roads, school buildings, dwelling houses, building for health care centres, building for community development centres that would improve the living conditions of the people in poverty.

Further, provision of electricity, telecommunication facilities, supply of water or drainage systems, medical relief, health care and also basic needs of people such as education, access to medicine or educational facilities for the rural communities in particular as included, for tax remision. Managing natural resources, such as water, environment, coastal and waste clearance and recycling ; enhancement of technical skills, to add value to quality of life, increase the level of income of the poor are also a part of the list.

Mr Thiagarajah said that these remissions could be granted by the Inland Revenue Commissioner General and the Minister too could approve these activities for the purpose of remission of tax. He said that it is important to note that there are three types of remission pathways available.

He said that the new guidelines to follow in remission of taxes would be extremely helpful for the activities of NGOs, where the scope of remission is increased considerably. He said, “The area of work, the remission captures is much bigger”.

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