REGISTRATION AND
APPROVAL OF NPO AND
OBLIGATIONS UNDER THE
LABOUR LAWS OF PAKISTAN
(EOBI, SESSI, EDUCATION CESS,
WWF & CPWP)
Jawad A. Sarwana
Advocate, High Court
Questions, Questions
• What is a NPO?
• What is the legal regime which governs, controls or
regulates the existence and operations of NPO?
• Under what conditions can an organization be eligible
to call itself NPO?
• Which legislation should one apply under?
• How does one register a NPO?
• What are the obligations of and benefits from
registration?
• How to obtain tax exemption status?
• What should I do first: apply for Registration or
Exemption?
A Road Map
NPO defined
Benefits of NPO
Types of NPO’s acceptable to
The Commissioner of Income Tax
Obligations under Labor Laws
for NPOs
EOBI
Public Charitable Trusts
Societies / Vol. Soc. Welfare Soc.
Company Limited by Guarantee
SESSI
Legal Requirements for setting up
the 3 types of NPO
WWF
Application process for
registration and obtaining
approval from CIT - PCP
CPWP
On-going regulatory requirements
to maintain NPO status
CESS
NPO
• The definition of “non-profit organization” is contained in
Clause 36 of Section 2 of the IT Ordinance, 2001:
“2(36) “non profit organization” means any person:
a) established for religious, charitable or educational purposes
or for the promotion of amateur sport;
b) which is registered under any law as a nonprofit
organization and in respect of which the Commissioner has
issued a ruling certifying that the person is a nonprofit
organization for the purposes of this Ordinance; and
c) none of the income or assets of the person confers, or may
confer a private benefit on any other person.”
Benefits of NPO
• (a) Tax Exemption for all activities under Income Tax Ordinance
2001 and Income Tax Rules 2002.
• (b) Tax Exemption for the donors vis a vis donations made to such a
foundation/NPO.
• (c) Some of the various laws that deal with the issue confer the
status of artificial legal person to the organization and hence the
assets owned by such an organization shall be held in perpetuity
and recognition as a bona fide foundation.
• These are in addition to the benefits gained from Corporate Social
Responsibility (e.g. good public relations, competitive edge, good
reputation, employee participation and retainership).
Types of NPOs
Nonprofit Organizations in Pakistan may be
registered or incorporated by adopting any one of
four forms, namely:
Trust Act, 1882
trust
society
Societies Registration Act, 1860
voluntary social
welfare agencies
Voluntary Social Welfare
Agencies (Registration and
Control Ordinance), 1961
nonprofit company Companies, Ordinance, 1984
with limited liability
Societies Registration Act,
1860
Trust Act, 1882
Companies Ordinance,
1984
Science
Advancement of Religion
Furthering the
Literature
Fine Arts
development of :
Adv. of knowledge
Commerce
Instruction and the
diffusion of useful
knowledge
Art
Science
Religion
Foundation of maintenance Adv. of commerce, health
of libraries or reading
and safety of the public
rooms for use among
member of open to the
public
Sports
Social Sciences
Charity
or any other “useful”
objective
Public museums and
galleries of paintings
Works of Art
Advancement of any other
Mechanical/Philosophical
inventions
object beneficial to
mankind
Educational & medical
services
NPO’s can be involved in several
broad categories
• those involved in advocacy and lobbying
for example: Association of Human Rights,
PAWLA (PakistanWomen Lawyers Association)
• those involved in policy issues and debates
for example: PIIA (Pakistan Institute of
International Affairs, etc.)
• emergency, rehabilitation and relief
organizations, e.g. Eidhi Foundation, LRBT, etc.
Voluntary Social Welfare Agencies Registration and
Control Ordinance, 1961
The VSWA regulates grass-roots level organizations providing welfare services
to those in need.
The Ordinance requires that ALL organizations engaged in social welfare or
Charitable works must be registered with the Social Welfare Departments of the
Province. Registration does not confer legal personality on the entity.
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
Child, Youth and Women’s Welfare
Welfare of the physically and mentally challenged
Family Planning
Social Education, i.e. Education aimed at adults for developing a sense of civic
Responsibility
Rehabilitation and welfare of patients
Welfare of juvenile delinquents
Rehabilitation and welfare of released prisoners
Welfare of socially handicapped
Welfare for the elderly and destitute
Recreational programmes to ward of people form anti-social activities
Training in social work
Co-ordination of social welfare agencies
Voluntary Social Welfare Agencies Registration and
Control Ordinance, 1961
ORGANIZATIONS are required to maintain accounts and submit an annual report
and audit report to District Officers. The report must detail the management of the
Agency, its activities and plans for the next year.
Accounts and reports are made publicly available
Registered societies must submit a copy of the membership list annually.
Names containing Foundation, Trust, Federation or Forums not registrable
Registration can be within City or Province. If Provincial Registration is sought by the
the Organization it must show addresses of offices located in four different
districts of the Province
OFFICE ADDRESS: BOARD OF REVENUE OFFICE (BEHIND HIGH COURT), FIRST FLOOR
Pakistan Centre for Philanthropy
First Government authorized Certification Agency in Pakistan notified
vide Central Board of Revenue’s SRO 1116 (1)/83 dated December 18, 2003
An organisation may wish to obtain certification for:
(i) enhancing its credibility in the wider public (including donors) view; or
(ii) for obtaining tax benefits from the Central Board of Revenue (CBR);
(iii) or for both
PCP’s certification focuses on the examination of structures, systems,
procedures and processes put in place by an organisation to deliver
the services it promises and to ensure sustainability of its programmes
ONE NPO could require as many as FOUR
registrations/certifications to cover its
operations:
One registration under its charter / constitutional
document as per its relevant law, i.e. Trust Act for a Trust,
Societies Registration Act, 1860 for a society; and
Companies Ordinance, 1984 for a Non-Profit Company
Two requiring registration under the Voluntary Social
Welfare Agencies (Registration and Control)
Ordinance, 1961; and
Third certification from the Pakistan Center for Philanthropy
Four approval from CIT
THAT’S NOT ALL:
If an NPO is involved in fund-raising activity, say a mela or a play to
raise funds, say the Arts Council, the NPO will also require:
To obtain permission from the Office of the Local Deputy
Commissioner under the Charitable Fund (Regulations of Collection
Act, 1953 now Permission from the Town Nazim / Local Government
and after obtaining the above-mentioned Permission proceed to
Apply and obtain a waiver of Entertainment Duty
on the sale of tickets from the Provincial Excise Department
International NPO’s
Int’l NPO’s are required to register and agree
to a Memorandum of Understanding (MoU)
with the Economic Affairs Division. E.g. British
Council, PACC, Alliance Francaise, Goethe, etc.
The NPO will also require registration with the
Ministry of Interior, which is responsible for
vetting foreign staff before registration
is approved and permission is granted to
Operate in particular areas.
Trust Act, 1882
A trust is an obligation annexed to the ownership of
property. It is a “gift” of property to a person or institution
providing benefit to both parties.
Conditions for creation of a trust:
(i) Creator or author of the trust
(ii) Trustee, a person, in whom confidence is reposed
(iii) Beneficiary, person(s) for whose benefit the trust is
created – Cannot be specific individuals but must be
society generally or section or class of society
(iv) Trust property whether in cash or capital assets (land or
buildings)
(v) Objectives of the trust must be charitable or for benefit of
society
Trust Act, 1882
The Application for Registration of Trust requires the
following
•
Particulars of documents creating the trust.
•
Particulars of the trustees and the beneficiaries.
•
Details of what the trust property is going to be. There is
no minimum value of property for starting a trust. If the property
is an immovable property then the transfer deed shall be on a
Rs.150 non-judicial stamp paper on the value of the property
and it shall be registered.
•
Preparation of the trust deed, that is, i.e. declaration of
having created a public or private charitable trust, as case may
be.
Trust Act, 1882
Duties and Liabilities of a Trustee
• Fulfill the purpose of the trust and obey the directions of
the author (i.e the person who reposes the confidence).
• Inform themselves about the state of the trust property.
This may enable the trustee to obtain, when required, the
transfer of the trust property to himself, and to obtain for the
trust, the funds that are invested on insufficient or
hazardous security.
• Protect the title to trust property and defend all suits that
are required for the preservation of the trust property, and
therefore, the protection of the title.
Trust Act, 1882
Duties and Liabilities of a Trustee (Cont’d)
• Take care of the trust property. However, in the absence
of a contract, a trustee managing such property is not
answerable for any loss or deterioration of the trust
property.
• Prevent wastage. If the trust property is prone to be
wasted, or is of future or reversionary interest, then the
trustee shall convert the property to a permanent and
profitable nature.
• Invest trust money which cannot be applied immediately.
Further, proper accounts of the trust property must be
maintained, and all information in this regard kept available
at the request of any beneficiary.
Trust Act, 1882
Discharge of Trustee
a) the extinction of the trust,
b) the completion of the duties under the trust,
c) appointment of a new trustee in his place,
d) by a voluntary consent, and
e) on account of a petition for his discharge by the court.
Trust Act, 1882
Rights and Liabilities of the Beneficiary
I.
has a right to the rents and profits of the trust property,
II. is entitled to have ‘the intention of the author of the trust
specifically executed to the extent of the beneficiaries
interest’.
III. Has the right to inspect and take copies of the
instrument of trust, accounts etc.
IV. The right to transfer ‘beneficial interest’, subject to law.
V. The beneficiary has a right to sue for the execution of the
trust, if no trustees are appointed, or all trustees die,
disclaim or are discharged.
Trust Act, 1882
Rights and Liabilities of the Beneficiary (Cont’d)
VI. Has the right to have a proper trustee who shall protect
the trust properly.
VII. Has the right to have the management of the trust in
the right hands and by proper number of the trustees.
VIII. Has the right to have the trustee compelled to execute
any act of his duty and refrain from committing any breach
of trust.
Trust Act, 1882
Dissolution of the Trust
• Has the right to have a proper trustee who shall protect
the trust properly.
• When its purpose is fulfilled
•When its purpose becomes unlawful
• When the fulfilment of its purposes becomes impossible
due to the destruction of trust property
• When the trust, being revocable, is expressly revoked.
Societies Registration Act, 1860
This is considered to be one of the more lenient acts
with respect to registration requirements of NPO and
accounting and audit regulations.
Registration
• Requires seven or more persons join together of whom at
least three must be the members of the Managing
Committee.
• Memorandum, Articles, Rules and
Association required in printed form
Regulations
of
• Memorandum must contain object clause whereas
Articles must state how society will operate
Societies Registration Act, 1860
The Memo of Association must include:
• The name and registered address of the society.
• The names, addresses and occupation of each present
member of the Managing Committee.
• Rules and Regulations of the society or Articles of
Association duly signed by all office bearers.
• In the case of an educational society, the academic
certificates of all the subscribers must be produced.
• Photocopies of the CNIC Cards of the office bearers.
• Rent agreement of the office premises.
Societies Registration Act, 1860
The Articles of Association must include obligatory
clauses relating to:
• Membership
• General Body and Managing Committee
• Meetings and quorum
• Notices for meetings
• The manner of elections and removal of officers
• Procedures relating to accounting and audit
• Dissolution
Societies Registration Act, 1860
Certificate of Registration
Correspondence and Application Costs and Expenses:
addressed to:
Provisional Assistance Registrar Official Fees:
Joint Stock Companies
Rs.15,500 approx.
Government of Sind
Barrack No.25
Challan in NBP Bank,
Hotel Jabees Branch
Postal Address:
Karachi
Directorate of Industries
Government of Sindh
Barrack No.25
Shahrah e Liaquat
Karachi
Societies Registration Act, 1860
So now you have a Certificate of Registration
Enforce rules against Members
Sued and be sued in its own name
Maintain bank accounts in the name of the society
If judgment is passed against a person on behalf of
the society, the judgment can only be enforced
against the property of the society not against the
person.
SINDH Benefit – It used to be that societies could apply for
‘amenity plots” at half of the rate for residential plots from
KDA
Societies Registration Act, 1860
Rights and Liabilities of Members
• Right to vote
• Right to receive notices and reports
• Right to resolve disputes
• Liabilities are limited to be sued as a stranger (that is, a
person who is extraneous to the Society itself)
• Members guilty of misapplication of funds will be
subjected to the same punishment as any other person
• Recovery of penalty accumulating under bye laws
Societies Registration Act, 1860
Accounts and Audits
The Act does not provide for maintenance of accounts or
their audit in any specific form or manner. However, every
society needs to keep correct and updated books of
accounts containing information with respect to:
a) All sums of money received and all sums of money
disbursed by the society
b) all sales and purchases of the society
c) all assets and liabilities of the society
Societies Registration Act, 1860
Accounts and Audits ( Cont’d)
Furthermore, it is in the interest of the society to maintain
the following books of accounts:
i.
Cash Book, showing daily income and expenditure.
ii. Vouchers for contingent and other expenditure incurred
by the society.
iii. Ledger showing consolidated and separate accounts of
all items of receipts, expenditure member wise, as well
as item wise.
iv. Monthly register of receipts and disbursement.
Societies Registration Act, 1860
Auditing of Accounts
Every society is required to get its accounts audited once a
year by a qualified auditor.
The report should indicate the exact financial affairs of the
society.
Companies Ordinance, 1984
Company Limited by Guarantee
A nonprofit company is registered under Section 42 of the
Companies Ordinance, 1984 as a public company with
limited liability provided it meets the following criteria:
It directs, or it intends to direct its profits, if any, or
any other form of income from the business carried
out, in advancing its objectives.
It disallows the payment of any return to its
members.
Members are not allowed to be remunirated for
services rendered.
Companies Ordinance, 1984
Registration is done through the SECP.
Incorporation of a Non Profit Company is similar to that of
incorporation of companies, including submission of
Memorandum and Articles of Association.
NPO’s registered with SECP can use their name without the
suffix “Limited” “Private Limited” or “(Guarantee) Limited”
Once a NPO is registered the legal status of the concerned
association becomes that of a “body corporate having
established succession and a common seal.
Commissioner of Income Tax
Registration as a NPO
The documents required to be submitted along with the
application form are as follows:
(a) a duly attested copy of the constitution, memorandum
and articles of association, rules and regulations or byelaws;
(b) a certified copy of the registered trust deed, in case of a
Trust;
(c) a certified copy of certificate of registration of welfare
organisation;
(d) duly attested copies of the balance sheet and of revenue
accounts of the organisation as audited by a qualified
accountant for the year immediately preceding the year in
which the application is made;
Commissioner of Income Tax
Registration as a NPO (Cont’d)
(e) the names and addresses of the promoters, directors,
trustees, president, secretary, treasurer, manager and other
office bearers, as the case may be, of the organisation, and
indicating clearly their family relationships, if any, with each
other;
(f) an evaluated and certified report with regard to the
performance of the organisation for achieving its aims and
objects during the preceding financial year preceding the
date on which application is made. This can be done by the
Philanthropy Centre of Pakistan or the concerned
Commissioner of Income Tax.
Commissioner of Income Tax
Registration as a NPO – Constitution Docs of NPO
must confirm to the provisions of sub-rule (1) of
Rule 213. This requires the following:
(a) for the audit of the annual accounts of the organisation every year by
a qualified accountant;
(b) for welfare organisations other than Trusts for the quorum of a
meeting of the members of the body to be not less than four or one-third
of the total number of the members of such body, whichever is greater;
(c) where the organisation is a Trust as defined in the Trust Act, 1882,
for the quorum of a meeting of the members to be not less than three or
one-third of the total number of the members of such a body, whichever
is greater;
(d) for the transfer of its assets, in the event of its dissolution, after
meeting all liabilities, if any, to another organisation which is an
approved non-profit organisation, within three months of the dissolution
under intimation to the Commissioner;
Commissioner of Income Tax
Registration as a NPO – Constitution Docs of NPO to
confirm to the provisions of sub-rule (1) of Rule 213
(Cont’d) :
(e) for the utilisation of its money, property or income or any part thereof
solely for promoting its objects;
(f) for prohibiting any portion of its money, property or income being paid
or transferred directly by way of dividend, bonus or profit to any of its
members or the relative or relatives of a member or members;
(g) for the maintenance of accounts of the organisation being kept in a
scheduled bank or in a post office or national savings organisation,
National Bank of Pakistan or nationalised commercial banks;
(h) for prohibiting the making of any changes in the constitution,
memorandum and articles of association, trust deed, rules and
regulations or bye-laws, as the case may be, without the prior approval
of the Commissioner; and
Commissioner of Income Tax
Registration as a NPO – Constitution Docs of NPO to
confirm to the provisions of sub-rule (1) of Rule 213
(Cont’d):
(i) for restricting the surpluses or monies validly set apart, excluding
restricted funds, upto twenty-five per cent of the total income of the year:
Provided that such surpluses or monies set apart are invested in
Government securities, NIT units, a collective investment scheme
authorized or registered under the Non-Banking Finance Companies
(Establishment and Regulation) Rules, 2003, mutual fund, a real estate
investment trust approved and authorized under the Real Estate
Investment Trust Rules, 2006, or scheduled banks:
Explanation: For the purposes of the Rules, “restricted funds” mean
any fund received by the organization but could not be spent and
treated as revenue during year due to any obligation placed by the
donor.
Labour Laws and NPO
Employees Old-Age Benefits Act, 1976
Provincial Employees Social Security Ordinance, 1965
The Workers’ Children Education Ordinance, 1972
Trusts under Trust Act, 1882; Societies under Society Registration Act,
1860 and Non-profit Companies under Section 42 of Companies
Ordinance, 1984 are
ALL REQD. TO PAY CONTRIBUTION UNDER THE ABOVEMENTIONED LAWS.
Employees Old-Age Benefits Act, 1976
“Section 4:
It applies to every industry or establishment –
(i) Wherein five or more persons are employed by the employer
directly or through any other person. . . .”
Section 2(e) means –
(i) an establishment to which the West Pakistan Shops and
Establishment Ordinance, 1969 for the time being applies. . .and. .
.includes clubs, hostels, organisations and messes, not maintained
for profit or gain and establishments, including hospitals, for the
treatment or care of sick, infirm, destitute or mentally unfit persons.
. . .”
Section 2 (e) of WP Shops and Establishment Ordinance, 1969:
“commercial establishment” means an establishment which carries on
any business. . ., and includes –
(i) a society registered under the Societies Registration Act, 1860 and a
charitable or other trust whether registered or not which carries on,
whether for purpose of gain or not, any business, trade or profession....”
Employees Old-Age Benefits Act, 1976
“Section 9. Rates and Assessments. –
. . .contributions shall be payable every month by the employer to the
Institution in respect of every person in his insurable employment at
the rate of 5 percent of his wages in the prescribed manner. . . .”
Contractor’s worker’s are also covered – Lahore Race Club 1998
SCMR 1571
Latest Development:
In CP No. D-260 of 2008, Employees Federation of Pakistan v.
Federation of Pakistan, the Hon’ble Division Bench of the Sindh High
Court relying upon the Judgment of the Hon’ble Supreme Court in the
SHCBA case (PLD 2009 SC 879) has held that the Legislature does not
have power to amend general laws including labour laws through a
money bill and consequently all amendments brought through the
Finance Act 2007 are ultra vires of the Constitution.
So what next: Check with your Labour Lawyer?
Provincial Employees Social Security
Ordinance, 1965
Leading Judgment: Citizens Foundation v. Director, SESSI,
2010 SCMR1659
The Supreme Court held that NPO/NGO’s fall within the definition of
“establishment under PESS Ordinance, 1965, hence establishments
notified under Section 1(3) of PESS Ordinance, 1965 are liable to pay
contribution.
Hospitals are also liable to pay contribution even though the objectives
of PESS Ordinance is to provide medical benefits to secured workers
(Liaquat National Hospital case 2006, PLC 364).
Contractor’s employees are also covered (Consolidated Sugar Mills
case, 1989 SCMR 888)
Provincial Employees Social Security
Ordinance, 1965
Section 20. Notified Establishment shall pay to the Institution a
contribution not more than six percent of wages provided no
contribution shall be payable on so much of an employee’s wages as in
excess of 400 rupees per day or ten thousand rupees per month.
The Workers’ Children (Education)
Ordinance, 1971
Section 3. Every employer of an establishment in which the number of
workers employed at any time during a year is 10 or more shall pay an
education cess at the rate of 100 rupees per worker per annum.
Section 2(c) – “worker” means any person employed whether directly or
indirectly through any person in any establishment to do any skilled or
unskilled manual or clerical work. . .whose wages do not exceed
Rs.3,000. . .”
Section 2(b) “establishment” means any office, firm, industrial unit,
undertaking, shop, or premises in which workers are employed for the
purpose of carrying on any business, trade, manufacture, calling,
service, employment or occupation.”
Hospitals and NPO also liable to pay education cess to workers (Holy
Family case, 1985 SCMR 593; and Liaquat National Hospital case, PLD
1977 Karachi 843).
Workers’ Welfare Fund Ordinance, 1971
Section 4(1) requires every industrial establishment, the total income
of which in any year of account is not less than Rs.500,000 shall pay to
the fund in respect of that year a sum equal to two percent of its total
income. . . .”
Section 2(f) – “Industrial establishment” means
“(iv a) any establishment to which the West Pakistan Shops and
Establishment Ordinance, 1969 for the time being applies”
- Inserted by the Finance Act, 2008
Section 2 (e) of WP Shops and Establishment Ordinance, 1969:
“commercial establishment” means an establishment which carries on
any business. . ., and includes –
(i) a society registered under the Societies Registration Act, 1860 and a
charitable or other trust whether registered or not which carries on,
whether for purpose of gain or not, any business, trade or profession....”
Workers’ Welfare Fund Ordinance, 1971
In the case of Mutual Funds Association of Pakistan v.
Federation of Pakistan and Another, 2010 PLC 306, the
Hon’ble Division Bench upheld the 2008 insertions made
through the Finance Act.
BUT recently in CP No.D-2753 to D-2756/2009 and
other Petitions, the Hon’ble High Court constituted a
larger bench to re-consider the points discussed in 2010
PLC 306. In March 2011, the larger bench completed
hearing in the matter and judgment is now awaited on
the legal validity of the 2008 insertion.