iipm think tank
> Section 80(G): A Hogwash
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Business and Economy
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The Sunday Indian
Prasoon S Majumdar
Editor, Economic Affairs - The Sunday Indian
Dean Academics (All India), The Indian Institute of Planning and Management
Section 80(G): A Hogwash
A change in the Section 80(G) can make it more meaningful
Recently I came across an intriguing fact. The corporate contribution to charities in India, for the current fiscal, would be touching a staggering Rs 30,000 crore. A whopping 27% increase over the previous fiscal, which was around Rs 22,000 crore. What is intriguing is the fact that when compared to India’s annual economic growth (which is around 9%), this growth in charitable contributions looks seemingly abnormal! It indicates that either our corporates are on a benevolence binge or there is something sinister somewhere!! Benevolence is out of the question, because if our corporates had been truly so, then India would not have been the nation it is today. Which means, there is something surely sinister about this growth in charitable contributions.
For sometime now I’ve been wondering as to what has been the objective of the policy maker in giving away tax exemptions (80(G)) to the corporates against their contributions to charity. If the objective was just to enhance contribution to charity, I would say that it has succeeded phenomenally. But if the objective was more than just contributions, i.e. to bring about social development through charity, then our policy makers have failed miserably. Whatever may have been the rationale, the effect of 80(G) has been negative on two accounts. Firstly, it has restricted the accountability of corporates to just contributions. The exemption is structured in such a manner that it has virtually failed to inspire the corporates to go beyond and find out as to where and how there money is being spent, or what percentage of the contributed fund is actually being spent on social development. The effective utilisation of these funds has not been anybody’s concern, which is amply validated by the state of the social sector of our country. Secondly, what has been worse is the fact that section 80(G) has successfully institutionalised corruption. Some of the corporates have been astutely employing this exemption as a tool to reduce their tax liability without heed to social accountability. With so much of corruption already existing in our country, this evasion should not have been a big deal but the amount of money that is being involved makes it a serious concern (this fiscal the companies would reduce their tax burden by almost Rs 5,000 crore, under Section 80(G) alone!!! ).
So if charitable contributions are actually intended towards social development then why can’t our policy makers stop exempting the corporates from their ‘contributions’ and provide exemptions to them on creation of long lasting social assets (like schools, toilets, roads etc.). This way the money contributed by the corporates would be utilised optimally and the accountability would shift from mere ‘contribution’ to ‘social development’. This would not only enhance social accountability but also discourage corruption as well. There is another advantage. Currently, the lack of accountability also brings about inefficiencies in the functioning of charitable institutions, through which the corporates route most of their contributions. Once the corporates are made accountable for asset creation, the charitable institutions by themselves would become more efficient.
What more, Rs 30,000 crore, if utilised efficiently, could provide primary education to all our children, sanitation to all and still leave funds for primary health care . . .
Sinister!! Isn’t it??
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