With the Companies Bill making it mandatory for the Indian companies to spend two per cent of their profits on corporate social responsibility (CSR), India Inc has started lobbying with the government to compensate them by giving tax incentives on the funds spent on CSR.
It is estimated that 2,500-odd companies will have to spend between Rs 10,000 crore and Rs 15,000 crore a year on CSR after the Companies Bill was cleared by the Lok Sabha yesterday. Many India Inc CEOs say the expenses incurred towards CSR should be treated as tax-deductible expenditure.
"Any such expenditure by corporates towards the thrust areas defined by the government should be provided a weighted tax deduction of 150 per cent," said a Mumbai-based CEO. The spend on CSR has to be calculated on the basis of two per cent of the average net profits of the last three years. If the spend falls short of the mandatory ceiling, then the management has to give reasons.
Others say this is good for the country in the long run. "This will mean a significant increase in investment in the social sector. For the companies, this means a more structured approach to CSR, which now has to be a part of the board's agenda, with greater accountability on spend and outcomes," said Sudipta Das, partner and leader - climate change & sustainability services, Ernst & Young.
Das said the initiatives listed for CSR were those related mainly to the millennium development goals (MDGs), to which India has an obligation. India's past performance on the MDGs has been falling short of the targets, which need to be met by 2015, he added. "So, one can probably expect positive implications for the companies, the economy, as well as the country," he added.
While the expenditure on CSR will come as a jolt to many, especially those among tier-II companies, big companies will not face pressure to set aside money for CSR activities. A Birla spokesperson said most of the group's companies were spending two per cent of net profits on CSR.
Tata Group companies are also spending a lot on CSR activities and do not require any nudge from the government to spend on CSR, a Tata insider said. Chairman of Wipro Azim Premji has already set up a foundation named after him which is spending close to Rs 10,000 crore in opening school, colleges and a University in Bangalore.
KNOW YOUR CLAUSES
Key investor-friendly items in the Bill
- Clause 151: Appointment of director by small shareholders
- Clause 108: Right to vote at meetings by electronic means
- Clause 13(8) ii & Clause 27: Exit option to shareholders in case of dissent to the change in objects
- Clause 230 (7) (e): Exit option to shareholders in case of compromises, arrangements and amalgamations
- Clause 245: Provisions for class action suits
- Clause 211: Constitution of the serious fraud investigation office
- Clause 75: Acceptance of deposits from the public, subject to a more stringent regime
- Clause 221: Inspection, enquiry and investigation
- Clause 229: Punishment for falsification during inspection
- Clause 228: Inspection and investigation of foreign companies
- Clause 139 (2): Rotation of auditors
- Clause 149 (7): Code for independent directors
Source: Ingovern Research
