Financial Times

Paying taxes for money donated to tsunami victims
By Quintus Perera
At a recent discussion in Colombo between NGOs and an international accounting firm that had prepared an effective tool kit for tsunami related work, an angry official asked, “I don’t understand why we have to pay tax on the money we bring into Sri Lanka. We spend this money on Sri Lankans in distress which otherwise have to be paid for by the Sri Lankan government."
He was responding to a query from The Sunday Times FT when asked for his comments on the new laws effective from April 1 bringing NGOs into the tax net.

Representing one of the largest international NGOs handling humanitarian relief work in tsunami affected areas, the official, who declined to be named, said more than US $ 17 million over a period of three years has been set aside for tsunami work. He said that more than 98 percent of the funds would be spend on the relief programme and only less than two percent would be their overheads.

Critical of the new tax regime, he said that what is happening here is quite absurd as it looks like even the beggars are taxed as these funds are spent on almost destitute persons. He also said that their salaries are taxed in the donor countries as well as here in Sri Lanka, which is rather unfair.

Last week, accountancy firm Ernst & Young, part of the international accounting group, presented a 'Tool Kit' it had developed to help organizations that provide humanitarian aid to Tsunami victims to establish proper systems of accountability and internal control.

Author of the "EYe Tool Kit", Adlai Goldberg, Ernst & Young Jakarta explained the details of the tool kit at a brief seminar arranged in association with the Consortium for Humanitarian Agencies (CHA).

During the discussion, questions were raised about the new tax laws, Ms Lakmali Nanayakkara, Tax Partner, Ernst & Young Colombo explaining the nature of the NGO Tax Law said under it NGO's would be paying tax at 30 percent on a taxable income computed at 6 percent of grants and similar receipts and said that exemptions are considered by the Minister of Finance and the Commissioner General of Inland Revenue.

She said that all NGOs other than those specifically excluded by the Tax Commissioner or the Minister are liable to tax. As defined in the amending law NGO means "any organization or association formed by a group of persons on a voluntary basis which is non-governmental in nature dependant on grants, donations contributions or money received from any other means 'locally or from any foreign country or any foreign or local organization and established or constructed for the provision of relief and services of a humanitarian nature to the poor and destitute, to the sick, orphans and widows, youth and children and generally providing relief to the needy in times of disaster, which is determined by the Commissioner General to be a Non-Governmental Organization for the purpose of this section."

Goldberg said that though Indonesia was badly affected and an enormous amount of grants coming to the country, there are no laws enacted to tax NGOs. Outside the discussion, other NGO participants told The Sunday Times FT that they were concerned about taxing humanitarian organizations and indicated that such a law was not be found anywhere in the world.

Asite Talwatte, Managing Partner, Ernst & Young, Sri Lanka made the welcome address while Jeevan Thiagarajah, Executive Director, Consortium of Humanitarian Agencies gave an introduction to the programme.
Explaining details about the Tool Kit, Gold berg said that after the tsunami huge sums of money, goods and services began to pour into the affected countries for emergency relief and rehabilitation efforts from around the world which could be valued at US $ 9 billion. He said that there is also considerable pressure from the donors, non-governmental and not for profit organizations, local governments and the impacted communities to ensure that this aid is effectively and efficiently spent as intended.

He said that as part of Ernst and Young’s commitment to support tsunami relief efforts and to help provide transparency and accountability in this very important humanitarian mission, the firm had developed EYe Tool Kit as a resource to help providers establish adequate systems to accountability and internal control within their organizations.

The Tool Kit suggests a number of internal controls for the NGOs to follow. It intends to improve the effectiveness and efficiency of an NGO's operational activities.

I K Balasooriya, Advisor, Centre for Non-Governmental Sector (CNGS) said that in Sri Lanka the National Secretariat for Non Governmental Organizations at the Ministry of Women Empowerment and Social Welfare is the registering authority of the NGOs and Voluntary Social Services Organizations.

While appreciating the voluntary support offered nationally and internationally in numerous ways in the Tsunami disaster, she said the government had to monitor the activities of the organizations which carry out various projects and to ensure that the large volume of funds available to NGOs are channelled to productive activities such as housing, micro finance, livelihood support, etc.

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