Philanthropic, however praiseworthy, deceit

Did you know that public listed companies in Pakistan doled out Rs2.35 billion as donations in the year ending December 2009, according to the recently released Corporate Philanthropy in Pakistan report by Pakistan Centre for Philanthropy?
While the amount is just shy of the internationally accepted 1-percent-PBT rule, - under which corporations are expected to spend at least 1 percent of their profits before tax in philanthropic activities - you would be surprised to find that only 57 percent of the 542 listed firms analysed in PCPs survey formed the giving-companies. This is down from 60 percent in the year 2006.
This, coupled with the fact that the top 25 of giving-companies have been averagely contributing 75 percent of the total corporate donations in the last 5 years, means that the culture of corporate philanthropy still has plenty of room for improvement.
But here is a more interesting phenomenon: Most of the top giving firms have a giving-ratio of more than one percent - averaging a little above 2 percent of the profit before taxation (PBT). These mostly include big and renowned firms like Engro, Pakistan Petroleum, Nestlé, Hubco, National Bank of Pakistan and the likes.
However, those companies that have a giving-ratio of nearly 8 percent (i.e. unlike the big corporate earners, they dole out 8 percent of their profit before taxation) are mostly small earners that, on an average, earned Rs145 million in 2009, as against the average PBT of Rs6.3 billion of the top 25 givers.
This makes little logic; how can a small firm in the textile industry, as one cited in PCP report, that is making Rs10 million in profits, for example, give Rs4 million as corporate charity.
"There is a possibility that these firms are cooking their books to get tax benefits or perhaps to avoid giving dividends to their minority shareholders," says Adnan Mufti, a tax expert at Shekha Mufti Chartered Accountants.
But how is that possible, BR Research asked another leading tax expert, when the government allows tax benefit only on charity given to pre-approved institutions.
"The problem is that a lot of firms have had their trusts and NGOs registered in the pre-approved list, and that clears the way for them to give out huge quantum of charities to their associated trusts - only to route the same back into their personal pockets," he said on the condition of anonymity.
Two things, therefore, need to be done to check these. First, ensure the implementation of a better legal framework in terms of taxation and charity and so forth. And second, as Ramla Akhtar - a Pakistan-based CSR critic - points to the global trend, local corporations have to start moving towards more involved philanthropy that can ensure an enhanced state of accountability with a focussed and result-oriented sense of purpose.

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Trends in philanthropy of listed companies

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                                          Donations  Donations

          Total            Total          if taken a        as

           PBT*   YoY % Donations*  YoY % 1% of PBT*  % of PBT

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2000     36,477               228               365        0.6

2001     86,166    136%       277     21%       862        0.3

2002    150,349     74%       336     21%     1,503        0.2

2003    172,626     15%       496     48%     1,726        0.3

2004  1,177,586    582%       653     32%    11,776        0.1

2005    484,001    -59%     1,608    146%     4,840        0.3

2006    362,968    -25%     2,330     45%     3,630        0.6

2007    233,141    -36%     1,865    -20%     2,331        0.8

2008    350,807     50%     2,239     20%     3,508        0.6

2009    261,964    -25%     2,352      5%     2,620        0.9

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* Rs in million - PBT: Profit before taxation
Source: Pakistan Centre for Philanthropy