Corporate Social Responsibility in Nepal | Legal Requirements

Corporate Social Responsibility (CSR) is a corporate strategy that looks at how the business can benefit the wider society. Organization engage in CSR activities for a number of reasons which include - improving employee morale, better the organization brand image and benefit of wider society. CSR is usually integrated into a business model for an organization to be able to live in harmony with its operating environment.

 

As at present, there is law in Nepal that makes it mandatory for industries to separate fund and use such fund for social activities. The provision of corporate social responsibility was first time enacted through Industrial Enterprises Act, 2073 which was made more clear through Industrial Enterprises Act, 2076 and Industrial Enterprises Rules, 2076.

 

Applicability of CSR requirement in Nepal 

Corporate Social Responsibility measure is applicable to following industries:- 

a)     Industry with fixed assets of more than 15 crores; or 

b)     Cottage or Small industries having annual turnover of more than 15 crores. 

Amount to be allocated for CSR activities 

Industries where the corporate social responsibility requirement is applicable shall allocate at least 1% of the annual net profit (previously 1% of annual profit) to be utilized for corporate social responsibility (“CSR Requirement”). 

Areas where CSR funds can be utilized

There are 8 broad areas where funds can be utilized in coordination with local level governments. The CSR utilization cannot be made in those activities which may be directly profitable or beneficial to the respective industry.

Following are the areas where CSR fund should be utilized:

• Natural disaster prevention and rescue related activities.
• Providing medicine and health equipment to community health organizations, conducting heath awareness programs, health camps and other health related activities.
• Preservation and conservation of Nepali art, cultural heritage and monuments.
• Skill development and income generating programs for people with low income, from backward areas, rural women, differently-abled, minority groups and marginalized society.
• Scholarships for community schools and Universities, distribution of educational equipment & materials and other activities related to development of education sector.
• Pollution control, waste management, tree plantation, preservation of water source, alternative energy promotion and other environment conservation activities.
• Production and broadcasting of documentaries and awareness programs against social disorders such as smoking and drinking.
• Construction of rural drinking water, road, drainage & sewage, patipauwa, old age home, sports ground, religious site, community health building, other community building (including its repair and maintenance), orphanage, park, meditation centers, bus park, bus stand, other physical infrastructure for social welfare.

Additional provision on use of CSR Fund

1. At least 25% of such set aside CSR amount should be expensed in the areas affected by the industry.
2. Industry can deposit amount (limited to maximum 10% of the set aside amount for CSR) in any fund recommended by DOI and such deposited amount can be claimed as expensed from related planned CSR areas.
3. Bank and financial institutions (BFIs) will now be required to spend 5% of their total CSR fund for the corporate social responsibility on financial literacy related programs as  directed by Nepal Rastra Bank.
   

 

Submission of progress report 

The industry is required to submit annual progress report, plans and activities in relation to industry in compliance with corporate social responsibility requirement within 6 months of every financial year to the Registering Authority. 

Deduction as Expenses

Amount spent for CSR requirement can be deducted for the purpose of income tax calculation.