Corporate Social Responsibility: What is this elusive, and sometimes, mandatory responsibility?
What is Corporate Social Responsibility and is it mandatory?
Corporate Social Responsibility or CSR is the philanthropic activities of a corporate entity. This is governed by the Industrial Enterprises Act 2076 (2020) and the Industrial Enterprises Rules 2078 (2022). All medium, large, cottage and small industries that have a turnover of more than Rs 15 crores must spend 1% of their net profit each financial year to conduct socially responsibly work. If they fail to do so, then a penalty of 1.5% of the yearly net profit can be imposed by the concerned authority and may even attract an additional penalty of .5% of the yearly net profits for each year if the non-compliance exceeds more than one financial year. The term ‘turnover’ is understood to be the money brought in by the entity, and the term ‘net profit’ is understood to be the profit in hand after deducting all expenses. Further, entities not having a turnover of Rs 15 crores may also conduct socially responsible work even though it’s not mandatory, although these works would not be governed by the Industrial Enterprises Act 2076 (2020) and would not be legally understood to mean Corporate Social Responsibility.
Procedural aspects of Corporate Social Responsibility
The annual plan and programme for conducting Corporate Social Responsibility should be submitted to the concerned authority, and at least 50% of the Corporate Social Responsibility funds must be spent in the area affected by the concerned industry. It is also important to note that the report in relation to Corporate Social Responsibility spending must be submitted to the concerned authority within six months of the end of the concerned financial year. The National Civil (Code) Act 2074 (2017) provides for the modality by which a donation is to take place, and this also becomes important while conducting Corporate Social Responsibility. Furthermore, it is interesting to note that the amount spent on Corporate Social Responsibility may also be deducted as expenses for the purpose of income tax.
Conducting Corporate Social Responsibility
An industry that needs to conduct Corporate Social Responsibility may either directly conduct philanthropic works, or may do so by way of either setting up or donating to the charitable vehicles given below. These charitable vehicles are eligible for obtaining tax exemption certificates.
Non-governmental Organisations: Requires seven or more members who are citizens of Nepal and the regulatory authority lies with the concerned District Administration Office in terms of the Associations Registration Act, 2034 (1977).
Public Trust: Must be registered in terms of the provisions of the National Civil (Code) Act, 2074 (2017) and the regulatory authority is the concerned Land Revenue Office. This would need to be understood as being different from the traditional Guthis which are regulated by the Guthi Sansthan under the provisions of the Guthi Sanstan Act, 2033 (1976). It may also be established or co-founded by a foreign national as long as the charitable purpose is not for establishing shrines, temples, monasteries, domes, mosques, churches or carrying out other similar religious activities. Further, any contributions from foreign sources would attract the supervision of the Social Welfare Council.
Company not Distributing Profits: This requires a minimum of five members who are citizens of Nepal and the regulatory authority is the Office of the Company Registrar in terms of the Companies Act, 2063 (2006).
As a general rule, it should be noted that if charitable works are being conducted with foreign or government assistance then the supervision of the Social Welfare Council, in terms of the Social Welfare Act 2049 (1992), would be triggered.
Corporate Social Responsibility Works
The Industrial Enterprises Regulation 2078 (2022) provides that Corporate Social Responsibility can only be conducted in relation to the following:
- Disaster prevention, control and rescue.
- Health related programmes including distribution of medicines and health related equipment to community health institutions, raising public awareness about health, running health camps.
Preservation and promotion of Nepali art, literature, culture, archaeological heritage.
- Skill-based and income-generating programmes for low-income, backward, rural women, persons with disabilities and marginalised communities.
- Educational development programmes for community schools and universities, including distribution of scholarships, educational equipment, and materials.
- Programmes related to natural and environmental protection including pollution control, waste management, promotion of alternative energy.
- Campaign against social degeneration, anomaly, evils and social backwardness.
- Construction and maintenance of physical infrastructure such as drinking water projects, roads, sewerage, pavilions, old age homes, playgrounds, religious sites, community buildings, orphanages, parks, bus parks and bus stands.
The concept of Corporate Social Responsibility ensures that profit-making entities give back to the society they function in and impact. This creates a check and balance on the capitalist bottom line of profit-first, and thus creates an atmosphere of harmony between profit-making and social responsibility.