A high-level committee appointed by the government has recommended a uniform tax for all corporate social responsibility (CSR) activities carried out under the new Companies Act and also suggested lenient treatment of non-compliant firms during the first two to three months as companies have to still familiarise themselves with the process.

The committee has also said that the government should have no role in monitoring of expenditure by corporates, which should be left to their respective Boards.Under the new law, profit-making companies are required to spend, at least, two per cent of their three-year annual average net profit on CSR. The first year of implementation was the financial year ended March 31, 2015, and compliance reports would be available by the end of this year.

According to the committee, differential tax treatment for expenditure on various CSR activities may create unforeseen distortion in allocation of funds across development sectors.

The company Board's decision could be guided more by tax savings implications rather than compelling community social needs. The committee therefore feels that there should be uniformity in tax treatment for CSR expenditure across all eligible activities, the report said.

At present, certain activities such as contribution to the Prime Minister's National Relief Fund qualify for tax exemption. The panel, chaired by former home secretary Anil Baijal, was set up by the corporate affairs ministry to suggest steps for improved monitoring of CSR spending.

According to the committee, leniency may be shown to noncompliant entities in initial two to three years to enable them to graduate to a culture of compliance since these years would be a period of learning for all the stakeholders. This liberal view can be taken, at least, for smaller companies, it added.

The government should have no role to play in engaging external experts for monitoring the quality and efficacy of CSR expenditure of companies, the panel said in its report. The Boards/CSR committees and the management are sufficiently empowered to engage any external firm, if they so require, it added.

According to the report, the Boards and the CSR committees should be monitoring their companies' social welfare spending. The existing legal provisions like mandatory disclosures, accountability of the CSR committee and the Board, provisions for audit of the accounts of the company, etc. provide sufficient safeguards in this regard, it added. (Business Today)