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FBR changes income tax law for NPOs, trusts, welfare institutions

FBR changes income tax law for NPOs, trusts, welfare institutions

ISLAMABAD: Federal Board of Revenue (FBR) has changed income tax laws for non-profit organization, trusts or welfare institutions, which were brought through Finance Act 2017.

The FBR issued Circular No. 04 to explain the important changes made to Income Tax Ordinance, 2001 through Finance Act, 2017.

The FBR said that prior to Finance Act 2017, non-profit organizations, trusts and welfare institutions enjoyed 100 percent tax credit equal to the tax payable subject to fulfillment of the following conditions:

(a) return has been filed; (b) tax required to be deducted or collected has been deducted or collected and paid; and (c) withholding tax statements for the immediately preceding tax year have been filed. Through Finance Act 2017, a new condition (d) has been added for availing this credit, which reads as under: (d) the administrative and management expenditure does not exceed 15 percent of the total receipts. The FBR said that the amendment introduced through the Finance Act, 2017 is to prescribe a limit of 15 percent on administrative expenses.

“However, this limit does not place any restriction on the operational activities of the NPOs as the project expenses are not covered under administrative expenses,” the FBR said.

The rationale behind this amendment is to stop misuse of receipts/donations etc. received by NPOs and discourage them from spending such amounts on huge administrative salaries, vehicles etc. Moreover, the newly inserted condition will not apply to a non-profit organizations, if- (a) charitable and welfare activities of the non-profit organization have commenced for the first time within the last three years; and (b) total receipts of the non-profit organization during the tax year are less than one hundred million rupees. The FBR further said that this condition applies only to non-profit organization and not to “trusts” and welfare institutions”.