Karachi: The Karachi Tax Bar Association (KTBA) has urged the government to eliminate the tax levied on surplus funds held by Non-Profit Organizations (NPOs) in the forthcoming Federal Budget for the fiscal year 2025–26. The association submitted its official budget proposals to the Federal Board of Revenue (FBR), emphasizing the critical role of charitable and welfare institutions in serving the public and the need for government support.
The Issue: Taxing NPO Savings
At the heart of the KTBA’s proposal is Section 100C of the Income Tax Ordinance, 2001, which pertains to the taxation framework for NPOs. The association specifically highlighted Sub-section (5) of this section, which mandates a 10% tax on the surplus funds retained by an NPO at the conclusion of a financial year.
The KTBA argues that this particular tax provision imposes significant financial pressure on NPOs. Many of these organizations are responsible for operating vital public services, including hospitals, schools, and various other welfare projects. Such institutions often need to accumulate funds over several years to finance substantial capital expenditures necessary for their operations, such as constructing buildings, developing infrastructure, or purchasing expensive medical and educational equipment. Long-term financial planning and saving are crucial for the sustainability and growth of these services.
Burden on Welfare Projects
A spokesperson for the KTBA stated, “NPOs must retain funds for ongoing and future welfare projects.” The association stressed that taxing these accumulated surplus amounts actively discourages saving and strategic long-term planning, potentially forcing NPOs to reduce the scope or quality of their service delivery to avoid the tax penalty.
The KTBA further pointed out that the existing Income Tax Ordinance does not contain any provisions that restrict NPOs from utilizing their retained surplus funds for welfare objectives in subsequent years. This absence of restriction, the association contends, makes the 10% tax under Sub-section (5) appear inconsistent with the overall policy objective of encouraging and facilitating charitable activities across the country.
KTBA’s Proposal for Abolition
To address this perceived inconsistency and financial burden, the KTBA has formally proposed the complete repeal of Sub-section (5) of Section 100C. They believe that removing this tax would allow NPOs to retain their surplus funds without penalty, thereby directly strengthening their financial health and enabling them to undertake essential long-term planning for future welfare initiatives.
By abolishing this tax, the KTBA suggests the government would send a clear and positive message of support to the multitude of NPOs working tirelessly throughout Pakistan, benefiting countless citizens through their vital public services. The proposal awaits consideration by the FBR during the budget finalization process.
