A question of trusts – regulations of NGOs

Source: The post is based on the article “A question of trusts” published in Business Standard on 29th August 2023.

Syllabus: GS2- Development processes and the development industry —the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

News: The government has tightened regulations for the Non-Governmental Organizations (NGOs).

How has the government tightened regulation for the NGOs?

In the past seven months, over 100 NGOs have lost their licenses under the Foreign Contribution Regulation Act (FCRA) as the government has imposed stricter disclosure requirements and established guidelines for fund utilization.

The Central Board of Direct Taxes has introduced changes to reporting rules, mandating that NGOs specify whether their activities are charitable, religious, or both in order to claim tax exemptions.

Additionally, in April 2023, the Income Tax Department issued 8,000 notices to large donors, citing concerns that these donations might be linked to tax evasion.

Why is the government cracking down on NGOs?

A 2022 report by the Comptroller & Auditor General (CAG), stated that about 21,000 unregistered charitable trusts took tax breaks between 2014-15 and 2017-18, which may have cost the exchequer Rs. 18,800 crores.

In 2014, an Intelligence Bureau report said some NGOs were negatively impacting economic development to the tune of 2-3 per cent of gross domestic product (GDP), although no concrete data on NGOs’ economic contributions to India’s GDP exists.

What are the concerns?

The arbitrary nature of the FCRA-related license cancellations raises concerns about potential biases related to the organizations’ ideological affiliations.

Though punitive measures against corrupt trusts is justified, the current pressure being exerted on the voluntary sector is counterproductive.

NGOs and trusts play a crucial role in channeling private funds for development, especially when the government’s performance in this area is inconsistent.

The sector is also a major job creator, accounting for over five million jobs, according to the government data, and plays a key role in linking youth to the grassroots.

While individuals may donate substantial amounts to NGOs to benefit from tax incentives, these tax breaks are lawful. If money laundering is suspected, the tax department possesses the necessary tools to detect such flows.

What should be the way ahead?

Given the confusion over NGO activities, there’s a need for a streamlined law.

Charitable work should be as precisely defined as it is in Corporate Social Responsibility (CSR) laws. This narrow rule would exclude elements like advocacy that can create political controversies.

Discouraging a sector that contributes to development is not a constructive way to address India’s human development challenges.