Pakistan’s new NGO tax will hurt those most at risk, say humanitarians

Pakistan’s new tax on non-profit groups will force humanitarian agencies to cut back on services to some of the most vulnerable people in the country, NGO workers say.
 
Pakistan imposed a tax in June on non-profits that spend 15 percent or more of their budget on administrative costs. Those costs would be taxed at a rate of 10 percent, as would any money left over at the end of the fiscal year if it totals more than 25 percent of the organisation’s budget.
 
Critics see the new tax as part of an ongoing crackdown on civil society, which has seen NGOs stripped of their charity status and shut down, accused of promoting blasphemy and pornography, and forced into a labyrinthine registration process. The government denies that there is a crackdown and says the new law is simply intended to cut down on waste in order to make sure the money provided to charities makes it to those in need.
 
"We have imposed taxes on the NGOs to stop misuse of the funds," said Ishaq Dar, a senator who was finance minister until cabinet was dissolved after a 28 July Supreme Court ruling that Nawaz Sharif should step down as prime minister amid corruption allegations.
 
"If the NGOs keep working in the prescribed limits, they won't have to pay the taxes,” he said in an interview. “Instead, they will actually have more money to spend on humanitarian programmes."
 
[The new amendments to the tax law can be found here on pages 152 and 153.] 
 

Complications

 
It’s not that simple, according to Aisha Khan, CEO of the Mountain and Glacier Protection Organisation, which works to mitigate the risks to people in rugged northern areas that are vulnerable to natural disasters like floods from melting glaciers. For example, some administrative costs go into paying staff salaries during the sweltering months from December to March when labour-intensive projects like building flood walls need to be put on hold.
 
“It is a mountainous area and we have to keep administrative cost of the projects over 40 percent to ensure their timely completion,” she said.
 
Khan said the government’s imposition of a tax on agencies that spend less than 75 percent of their yearly budgets on programmes would also be damaging. Her organisation puts aside some money for planned projects as well as to keep in reserve for natural disaster reponse.
 
“The government’s taxes will definitely force us to abandon numerous projects in the area,” she said, adding that some donors have already suggested they may cease their funding as they do not want it to be used to pay the new tax.
 
That’s also a concern for the Society for Human Rights and Prisoners’ Aid, which provides legal assistance to refugees and says it has has trained more than 10,000 law enforcement officers, public prosecutors, and judges since 2002.
 
Mudassar Javed, director of the group’s legal assistance programme, said the NGO will now need to cut by half the number of lawyers who staff legal aid centres in eight districts.
 
“We know the refugees in jails are suffering, but we can’t exceed our administrative expenses over 15 percent,” he said. “If we pay taxes to the government on donors’ funds, we will be violating our mutual agreement and risking future funding for our projects.”
 

Lawsuits looming?

 
Muhammad Habibullah Khan, a lawyer and tax expert at the Supreme Court, told IRIN that non-profit groups will likely challenge the new tax law in court before the end of the fiscal year on 30 September. While Pakistan’s tax code defines salaries as administrative costs, he said, the new tax contravenes contracts that NGOs have with donors, which will probably form the basis of any lawsuits.
 
"There is no dispute about administrative and management expenditures as they are clearly defined," he said, explaining that they are spelt out in Pakistan's income tax code to include staff salaries, fuel, rent, and utility bills. "The only dispute that is highly likely to arise is the limitation of administrative costs defined by donors and the government.”
 
Dar, the former finance minister, said that if national and international organisations prioritise their spending better, they won’t need to cut back on staff or violate contracts with donors in order to pay the tax.
 
“We want to make the NGOs and INGOs spend maximum of their funds on welfare projects instead of using them to pay extravagant salaries to their staff, air travel, board and lodging in the five-star hotels,” he said. 
 
Dar also denied the government has been cracking down on civil society in order to silence critics.
 
Civil society leaders beg to differ. Among the major incidents they point to in addition to the latest tax move: an investigation launched earlier this year into allegations that NGOs were promoting blasphemy and pornography, orders to NGOs to cease their work, and the forced closure of Save the Children in 2015.
 
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(TOP PHOTO: Actors perform a skit to raise awareness of the impact of climate change in Badin District, in Pakistan’s Sindh Province, last October. CREDIT: Aamir Saeed/IRIN)