Thu, February 22, 2024

Laws Related to CSR and Corporate Roles to Cope with COVID-19 

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The laws related to CSR are scattered. For instance, as per the Industrial Enterprises Act 2076 (the “Act”), all companies whose turnover is more than Rs. 15 crores shall have to allocate at least 1% of the annual net profit to corporate social responsibility. Primarily, this means that the provision of CSR will only apply to businesses classified as industries. The Act provides that the amount spent under CSR requirement can be deducted for the purpose of income tax. The fund allocated for CSR shall be utilised in specific sectors as provided under Rule 37 of the Industrial Enterprise Regulation 2076 (“Industrial Regulations”)by formulating annual plan and program. Rule 37 of the Regulation provides a number of sectors where the amount allocated for CSR shall be spent including Natural Calamities, Community Health Centers, Culture Socially Backward Communities, Community Schools, Pollution Control, etc. for social benefit. The plans and programs related to CSR shall be submitted within the end of six months of every financial year to the Department of Industry (DoI). The plans and programs for CSR shall be implemented in coordination with local authorities. In the Income Tax Act 2058, corporate bodies which have contributed donations to social welfare activities for non-taxable institutions, have been exempted from paying tax. Here we must note that since there is no guideline, there is no control mechanism to check whether companies benefitting from such exemptions did or did not fulfill requirement. In the wake up COVID 19, Nepal is facing many critical issues ranging from lack of distribution of resources, political conflict, corruption, environmental pressures and poor access to infrastructure and basic services such as health, clean water, education and housing. Gathering from the efforts of the government, it is apparent that efforts are also required from the private sector to coordinate and collaborate during such a time. Going by definition, the term natural calamity as provided in the Industrial Regulations, does not cover health related crisis like the current pandemic. Further, the Regulation does not provide explicit ground for CSR allocation in relation to prevent, control and combat global pandemic such as COVID 19. The Regulation does not provide explicit clarity whether spending of CSR funds for COVID 19 is eligible CSR activity or not. Based on the literal interpretation, the Regulation does not provide any scope for distribution of medicines and medical equipment to the health institutions other than community hospital. However, since Industrial Regulations provides for spending on Community Health Sectors, this would be a potential area where CSR can be directed. The Guidelines for Health Institution Establishment, Operation and Upgrade Standard 2014 (2070) defines community hospital as a not for profit institution registered in regulating authority and licensed for rendering health related services with the investment an operation of the community. The Definition of Community Hospital excludes other types of health institutions which have been licensed to provide health related services such as (a) teaching hospital, (b) government hospital, (c) cooperative hospital, (d) health clinic and (e) other health institutions such as research center, polyclinic, health clinic and lab services.  Applying the golden rule of interpretation, contributing to the health sector (in terms of health assistance, training camps, spreading awareness, medicines and equipment distribution etc.) for the current health crisis would fall under health related activities. The purposive interpretation would be that activity or contribution made for the current global pandemic is to be treated as CSR related activities under the definition of natural calamities or to broaden the scope of health related activities. COVID 19 would be treated as eligible CSR activities, so that a progressive approach to formulate and implement Regulation under the Act, expanding the scope of CSR activities such as promotion of healthcare, including preventive healthcare and sanitation and disaster management including the issues of global pandemic such as COVID 19. Due to the nature of the pandemic and the dire situation in Nepal, the corporate sctor should not only adhere to the mandatory legal requirement for companies whose turnover is more than Rs. 15 crores but be actively engage in CSR efforts. For instance, companies could contribute by providing financial support like scholarships to students in high school especially in vocational education, job security after graduation, practical trainings for the labour market, as well as efforts to mobilise community. There are discussions regarding hotels and motels being converted into quarantine centres. Companies in the travel business can provide free transportation in the agricultural sector. Companies in agro farming can provide seeds at low cost. At this time, it is important for the corporate sector to be innovative in its approach towards CSR by identifying the needs of the society, and the resources at its disposal. The joint funds collected through such efforts would be instrumental in making an immense impact.
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