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The Central Board of Revenue (CBR) has proposed eligibility criteria to appoint independent agencies for certification/rating of non-profit/religious organisations from July 1, 2004.
The CBR would give income tax exemption on donations/property income to these institutions/trusts on the basis of certification/rating by these agencies.
Rating agencies would also see transparency in financial transactions and resource mobilisation of non-profit organisations.
The CBR has proposed amendment in the Income Tax Rules, 2002, through an SRO.351(I)/2003 here on Friday to incorporate methodology for the appointment of these agencies.
A new rule 231B (authorisation of certification agencies) has been inserted after rule 231A of the Income Tax Rules.
The CBR has given fifteen days to stakeholders for giving their comments on the draft. After this deadline, the draft will be officially notified taking into account suggestions of all stakeholders.
The rules 211 to 220A explained procedure for the performance evaluation of non-profit organisations by authorised independent certification agencies.
The new procedure would apply after authorisation of certification agencies.
Under the new mechanism, the CBR chairman will constitute a committee for the approval of certification agencies. The committee will comprise not less than three members. The chairman shall also designate a member of the committee to serve as its chairman.
All nominations to the committee shall be ex officio. One-third of the membership or two members of the committee, whichever is larger, shall constitute the quorum for meetings of the committee.
An application from a non-profit organisation for authorisation as a certification agency shall be placed before the committee.
The committee shall consider the application after verification of documents and authorisation will be given through a majority vote. The chairman of the committee shall caste vote only in case of a tie.
Following is the criteria for authorisation of certification agency:
(a) Demonstrated and established eminence, credibility and stature of the governing body of such organisation that brings respect and credibility to the organisation and its work.
(b) Understanding of the organisation, essentially the senior management and programme staff, of parameters of evaluation as approved by the CBR.
(c) Human resource - quantity as well as quality - available with the organisation to conduct professional, objective and transparent evaluations of non-profit organisations.
(d) Financial resources available with the organisation for meeting the cost incurred on such evaluations.
(e) Organisational understanding and experience of working with the non-profit organisations.
(f) Experience of evaluating non-profit organisations or social programs.
(g) System put in place by the organisation to conduct evaluation and award of certification.
(h) Monitoring mechanisms to ensure transparency and objectivity.
The committee may call for any document, report and statement from the organisation concerned to assess the capacity of the organisation to undertake professional, objective and transparent evaluation.
It could also interview the managerial and program staff of the organisation to assess their level of experience, understanding and professionalism.
In no case, however, the committee shall decide to authorise an organisation which: (a) is not registered in Pakistan under any of the relevant laws as a non-profit organisation; (b) does not specifically prohibit distribution of profit, if any, to its members or staff; (c) is controlled, in part or wholly, by the federal government, provincial government or a local government; and (d) in its other programmes, create a conflict of interest in evaluating non-profit organisations.
The CBR opined that a grant-making organisation would have a conflict of interest if it undertakes evaluation and certification of its grant-recipient or potential-recipient organisations.
Similarly, a capacity-building organisation, evaluating non-profit organisations, whose capacity it has built or may build in future, would be in a conflict of interest situation.
An application received by the committee may be decided upon within a period of three months from the date of the receipt of such application.
However, an applicant, adversely affected by any decision of the committee, may file an appeal before the member (direct taxes) within 30 days.
An authorisation shall be granted for a period of three years and, thereafter, the committee shall re-assess the capacity and evaluate the performance of such organisation to function as a certification agency.
The committee shall complete such re-evaluation and its decision within three months, during which the certification agency shall continue to function as a legitimate certification agency.
In case of any change in the status of an authorised certification agency that may adversely affect its functioning as an agency, or in case of any gross violation of standards of professionalism, transparency, integrity or objectivity coming to the knowledge of the committee, it may, after due inquiry and after providing proper opportunity to the agency of being heard, withdraw such authorisation at any time.

Copyright Business Recorder, 2004

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