The government might tighten rules and take away tax privileges provided to non-profit organizations, following the suggestions of the White Paper on Black Money tabled in Parliament on Monday.
The paper has noted that fiscal and regulatory privileges provided to non-profit and cooperative organizations have become a source for tax evaders to camouflage their earnings.
The income, subject to various conditions, is treated differently for taxation purposes as compared to privately owned profit-oriented companies. "This creates an incentive for potential evaders to camouflage their concerns as non-profitable, charitable or cooperative," the paper notes. The only tangible solution, according to the paper, is to reduce the tax concessions provided to these organizations while subjecting them to a stricter regulatory regime.
However, the paper has also pointed out a glitch in implementing such a strategy. As most non-profit enterprises are working in the area of social welfare, any regulation may be seen as government opposition to such endeavors, hampering public opinion and hindering political consensus.
"This is somewhat a complex issue that may easily evoke strong emotional responses and can be implemented only after a large consensus is reached within society," the paper notes.
The report also suggests creation of a comprehensive database of non-profit organizations. It says the Central Board of Direct Taxes should act as a centralized agency for mandatory registration and monitoring of non-profit bodies.
For the cooperative sector, which too carries risks of tax evasion, the paper suggests stricter enforcement of the Know Your Customer norms. The initiative will have to be taken by both the central and the state governments. Responsibility may be fixed for any lapse in this regard as well as for any subsequent failure to alert authorities on any suspicious transactions in such accounts," the paper has said.
The paper has noted that fiscal and regulatory privileges provided to non-profit and cooperative organizations have become a source for tax evaders to camouflage their earnings.
The income, subject to various conditions, is treated differently for taxation purposes as compared to privately owned profit-oriented companies. "This creates an incentive for potential evaders to camouflage their concerns as non-profitable, charitable or cooperative," the paper notes. The only tangible solution, according to the paper, is to reduce the tax concessions provided to these organizations while subjecting them to a stricter regulatory regime.
However, the paper has also pointed out a glitch in implementing such a strategy. As most non-profit enterprises are working in the area of social welfare, any regulation may be seen as government opposition to such endeavors, hampering public opinion and hindering political consensus.
"This is somewhat a complex issue that may easily evoke strong emotional responses and can be implemented only after a large consensus is reached within society," the paper notes.
The report also suggests creation of a comprehensive database of non-profit organizations. It says the Central Board of Direct Taxes should act as a centralized agency for mandatory registration and monitoring of non-profit bodies.
For the cooperative sector, which too carries risks of tax evasion, the paper suggests stricter enforcement of the Know Your Customer norms. The initiative will have to be taken by both the central and the state governments. Responsibility may be fixed for any lapse in this regard as well as for any subsequent failure to alert authorities on any suspicious transactions in such accounts," the paper has said.
