Should cos get incentives for CSR efforts?

More benefits will spur voluntary Activity

The ministry of corporate affairs, under the leadership of Salman Khurshid, has become proactive on corporate social responsibility (CSR), in addition to its charge on corporate governance. Obviously, the two are different from each other and must not be put in the same basket. Corporate governance involves regulating a corporate that has chosen to list on the stock market and, thus, has major responsibilities towards its shareholders. Therefore, mandatory laws, statutes and accounting norms are invoked to bring transparency and accountability. On the other had, CSR is a voluntary activity by a company, listed or privately-owned, to serve bigger goals of society, beyond its routine market functions. In fact, India Inc is taking several initiatives in the space of CSR for the welfare of society. FICCI, for the last 10 years, has been recognizing industry’s CSR initiatives through an annual CSR award. The question here is whether the voluntary activity of CSR can be spurred through fiscal incentives.

Interestingly, many fiscal measures already exist in our Income-Tax Act. If a corporate donates funds to an approved NGO for social projects, it is eligible for 50% deduction of that amount, and 100% if it funds a not-for-profit organization (registered under Section 25 of the Companies Act). A stellar example of this nature is the creation of the FICCI Aditya Birla Centre for Excellence in CSR, paid for by companies of the Aditya Birla group. Similarly, if a company contributes to an approved scientific research association, it can get up to 125% deduction.

The moot point is: should we have more of such exemptions to attract larger number of corporates into the CSR net? Certainly. We may have to provide weighted deduction of 150% or 125% to motivate enough for encouraging corporates to make such voluntary CSR contributions.

This could possibly be done by inserting a new clause in either section 35(2AA) or section 35(2AB), to provide for 150% deduction of the amount paid to the approved institution/NGOs involved in CSR. With such bold measures to promote CSR, the UPA government will truly live up to its pledge for inclusion of the underprivileged and usher in a new paradigm of private-public partnership (PPP).