APPROVAL OF NON PROFIT ORGANIZAITON UNDER CLAUSE 36 OF SECTION 2

1) DEFINITION. Non Profit Organization means any person other than an individual, which is:- established for religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sport; Formed and registered under any law as a non-profit organization; Approved by the Commissioner for the specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the CIR; And none of the assets of such person confers, or may confer, a private benefit to any other person.

2) Objectives of NPO. NPO is generally established for the humanitarian purposes like: The advancement of education Relief of the poor. Medical relief. Orphanage. Homeless hostels. Relief of special needs of people with disabilities. Promotion of fine arts. Literature. Music etc. Natural disaster relief. Rehabilitation of victims. Legal assistance and advancement of any other object of general public utility. The welfare of the community. The promotion of amateur sports. Human Rights.

3) LEGAL FORMS OF NPO. In Pakistan, the NPOs are generally registered or incorporated in six to seven registration regimes. These are; The voluntary Social welfare Agencies (registration and control ordinance 1961). The Societies registration Act, 1860. The Cooperative Societies Act, 1984. The Companies Ordinance 1984. The Trust Act, 1882. The Charitable Endowment Act, 1890. Other Legal obligation includes Muslim Waqf.

4) DOCUMENTS FOR APPROVAL BY THE COMMISSIONER (IR) Documents required for CIR Approval Attested copy of constitution, memorandum, article of association or bye laws as the case may be, specifying the aims and objects. Certified copy of the registered trust deed, where applicable. Certified copy of certificate of registration or incorporation. Audited Financial Statements for the preceding year.

4) DOCUMENTS FOR APPROVAL BY THE COMMISSIONER (IR)(cont) Name and Address of Promoters, Directors, Trustees, president, secretary, treasurer, manager and other office bearer, as the case may be, indicating clearly their family relationships, if any, with each other. An evaluated and certified report with regard to the performance of the qualifying ‘NPO’ from Pakistan Centre of Philanthropy Islamabad. The Commissioner shall finalize an application under rule 211 with in two months of its receipt.

5) BENEFITS OF APPROVAL. Once approval has been granted by the Commissioner Inland Revenue, the NPO can avail various tax benefits including tax credit and exemptions. Any one making donations to an approved NPO can reduce his / her tax liability by claiming tax credit under clause 61 of Second schedule of Part 1 to the income tax ordinance 2001. Provided that the amount so donated in the above situation shall not exceed 30% of taxable income for the year of an individual or AOP and 20% of the taxable income of the company. An approved NPOs are exempted from levy of minimum tax of 1% of the their turnover

6) Circumstances under which approval shall not be granted under Rule 213 of Income Tax Rules 2002. 1) If the constitution, memorandum or articles of association, rules, regulations, or byelaws, or trust deed, as the case may be, specifying the aim and object does not provide” For the audit of its annual accounts For the quorum of a meeting of the members in which the control of the affairs of the “NPO” vests. In case of a ‘NPO’ other than a trust, of not less than four or one third of the total number of the members of such body, which ever is greater or In case of a trust, of not less than three or one-third of the total number of the members of such body, which ever is greater. In the event of its dissolution for the transfer of its assets after meeting all liabilities, if any, to another similarly approved ‘NPO’ within three months of dissolution under intimation to the Commissioner Inland Revenue.

6) Circumstances under which approval shall not be granted(Cont) For the utilization of its money, property or income or any part thereof solely for promoting its object. For prohibiting any portion of its money, property or income being paid or transferred directly by way of dividend bonus or profit to any of its members or the relative or relatives of a member or members. For the maintenance of accounts with directorate National Savings, National Bank of Pakistan, a scheduled bank, post office, or nationalized commercialized banks. For prohibiting the making of any changes in the constitution, memorandum and articles of association, trust deed, rules and regulations or by-laws as the case may be, without the prior approval of the Commissioner Inland Revenue. Provided that this clause is applicable where approval has been grant. For restricting the surpluses or monies validly set apart, excluding restricted funds, up to twenty five percent of the total income of the year.

6) Circumstances under which Approval is not granted(Cont) 2) If the Commissioner of Income Tax is satisfied that the applicant ‘NGO’ has been or is being used for personal benefit of particular person or group of person or for the benefit of its member’s or their families. Promoting the view of a particular political party or religious sect. has not or will not be able to achieve its declared aims and objects in view of its setup, administration or otherwise as evaluated and certified by an independent certification agency. Has made expenditures on salaries exceeding 50% of the total receipts excluding restricted donations or funds received during the tax year. Statement of accounts of NPO is compulsory and there is dissipation of funds or expenditure for any other purposes. The Commissioner Inland Revenue will notify the applicant, in writing, of his decision to refuse the approval along with a statement of reasons thereof.

7) WITHDRAWL FOR APPROVAL BY CIR Circumstances under which Approval given can be withdrawn Approval granted earlier can be withdrawn by the Commissioner Inland Revenue on being satisfied that any of the following circumstances exists: Any of the conditions listed under “circumstances under which approval is not granted”. The ‘NPO’ has failed to file its Return of Total Income. The ‘NPO’ has failed to provide after every three years an evaluated and certified report(PCP Report) with regard to its performance and achieving its aims and objects during the three proceeding financial year. Income deriving from donations, contribution and subscriptions and that applicant has failed to provide complete details of donors in term of rule 217(vi)(b) of Income Tax Rules 2002. The NPO has failed to provide list of beneficies of Rs 5000 and above in term of the requirement of rule 217(vi)© of Income Tax Rules 2002. Salary Statement of the NPO shows that board of governance / directors and trustees use organization for personal gain / benefit.

7) WITHDRAWL FOR APPROVAL BY CIR(Cont) Details of bank account maintained has not been provided by the NPO/NGOs. Incase of universities and education institution detail of investment like vehicles, structure and so on has not been provided List of the members of BOG/BOD and trust has not been verified from regulators like SECP and so on. Details of money set a part or kept unutilized has not been explained with reasons in term of Rule 217(1)(iv)(d) of the income tax rule's 2002. For obtaining tax credit in cases of education institutions and universities, detail of contributions made to NPOs and the list of the students to whom scholarships are awarded have not been provided. Applicant has failed to file statement of deduction of taxes under section 165 read with rule 44.

8) APPEAL AGAINST DECISION OF COMMISSIONER An organization dissatisfied with the decision of the Commissioner for refusal of application under rule 211 or withdrawal of approval under rule 217 may file an appeal within Sixty days of the receipt of order of commissioner with the Chief Commissioner (IR) of RTO/LTU. The Chief Commissioner (IR) shall make a decision within Sixty days of filling of an appeal.

9) CONDITIONS FOR 100% TAX CREDIT. NPOs/NGOs are allowed tax credit equal to 100% of the tax payable subject to the fulfillment of certain conditions Annual Income Tax Return has been filed of the preceding year. Tax required to be deducted or collected has been deducted or collected and paid. Withholding tax statements under section 149 and 165 for the immediately preceding tax year has been filed. In case the NPO generates part of its income from business or commercial activities and the same is expended for carrying out welfare activities, a proportional credit is allowed against such income.

10) LIST OF TAX CREDITS FOR NPO. Collection of tax at imports. Withholding from dividend income. Withholding on interest income from national saving schemes. Withholding on interest income from bank accounts. Withholding on interest income from loans & borrowings. Withholding from payment of goods, services and contracts. Withholding from rental payments. Withholding from prize bonds. Withholding on cash withdrawals. Collection on purchase of motor vehicles. Collection with motor vehicle tax. Collection on electricity bills. Collection on phone bills.

11) PENALTY FOR NON FILING 1) Where any person fails to furnish a return of income as required under section 114 with in due date, such person shall pay a maximum penalty of 50% of the tax payable and minimum penalty equal to twenty thousand rupees. 2) Where any person fails to furnish a statement as required under section 165 with in due date, such person shall pay a maximum penalty of Rs 2,500 per day for each day of default and minimum penalty of Rs 10,000/-. 3) Where any person fails to collect or deduct tax under any provision of this ordinance, such person pay a penalty of Rs 25,000/- or 10% of the amount of tax whichever is higher

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