KATHMANDU: The practice of the private sector directly spending a fixed portion of its profits on social initiatives under Corporate Social Responsibility (CSR) has been in place for a long time. While industries, banks, and financial institutions have been spending one percent of their annual net profit in sectors that contribute to society, a new provision has been proposed that would bar them from making such direct expenditures.

The draft of the “Bill to Amend Provisions Related to Company Law, 2026” includes a provision requiring institutions to deposit their CSR funds into a government fund. According to the proposed arrangement, the money must be deposited into a “Corporate Social Responsibility Fund” that the government plans to establish.

Regarding this legal proposal, individuals ranging from private sector industrialists and entrepreneurs to key stakeholders have expressed grave concern. They comment that the government is attempting to seize funds intended for social work from institutions, tightening control in a manner contrary to a liberal economy.

Banks, financial institutions, industries, and commercial enterprises directly spend a portion of their profits—after tax deductions from their total income—on areas such as disaster management, education, healthcare, sports, sanitation, and local infrastructure construction. This practice has played a vital role in strengthening institutional relationships with communities by executing social responsibility.

Experts note that the proposed requirement to deposit CSR funds into a government account will not only harm the institution-community relationship but will also act like levying an additional tier of tax.

Former Governor of Nepal Rastra Bank Deependra Bahadur Kshetry states that institutions should be allowed to spend CSR funds according to existing practice. He analyzes that eyeing CSR funds is tantamount to usurping the rights of banks, financial institutions, and industries. “CSR is inherently a concept where concerned companies and institutions spend a portion of their profit under social responsibility in their own manner; eyeing these funds is not right,” he says. “It is completely inappropriate to issue directions telling them to do this or not do that with CSR.”

Nepal Rastra Bank office in Thapathali. Photo: Shambhu Regmi

In Nepal, sectors including banks and financial institutions, manufacturing, education, and tourism have been practicing CSR. The Industrial Enterprises Act, 2019 and the Industrial Enterprises Regulations, 2021 mandate medium and large-scale industries to set aside at least one percent of their annual net profit for CSR. Provisions exist to fine industries that fail to fulfill their designated CSR obligations. For small industries as well, this provision applies once they cross a specified transaction threshold.

Banks and financial institutions are also subject to a mandatory requirement by Nepal Rastra Bank to spend at least one percent of their annual net profit under CSR.

The proposed bill seeks to introduce a mechanism to spend CSR funds through a centralized account. According to the draft bill, companies will have to deposit CSR funds into a government-designated fund. The money will then be mobilized across various sectors according to government priorities and plans.

Former Governor Kshetry states that mobilizing CSR funds through an integrated government fund is inappropriate. “If the government mobilizes CSR funds, then it is no longer CSR; it becomes just like a tax,” he says. “Through this, it appears the central bank via regulation and the government via restrictions are seeking to create difficulties for institutions contributing to society through CSR.”

Advising that this matter is linked to an open and liberal economy, Kshetry suggests the government take well-considered steps.

Control or regulation?

CSR, or Corporate Social Responsibility, inherently denotes an institution’s liability and accountability toward society. Because commercial enterprises or companies earn profits from the society or community, the underlying philosophy is that a portion of those profits should be returned to that community.

Accusations have been made that when institutions spend CSR funds at their own discretion, the process lacks transparency and effectiveness. Government officials state that the new legal provision aims to bring these funds into an integrated pool within a government fund to enhance transparency, coordination, and effectiveness in spending.

On the other hand, there is a lack of uniformity in how institutions spend under the CSR heading. Consequently, investments are duplicated in certain areas while remaining unaddressed in other necessary sectors. The government believes that mobilizing funds through a central pool will enable balanced development aligned with national priorities.

Nepal Rastra Bank Spokesperson Guru Prasad Paudel states that the central bank recently issued guidelines prioritizing transparent spending of CSR funds, adding that if this matter is codified in law, it will be easier to regulate according to those guidelines. “The guidelines issued by Nepal Rastra Bank for banks and financial institutions outline where spending is permitted, where it is barred, transparent reporting systems, and auditing requirements,” he says. “If these matters are established in the Act itself, regulating the guidelines issued by Nepal Rastra Bank will become easier. Otherwise, the central bank will continue its routine work based on current legal provisions.”

Spokesperson Poudel adds that other regulatory bodies are also enacting measures to streamline and improve the mobilization of CSR funds.

Stakeholders, however, argue that taking CSR funds into a government account under the guise of addressing un-transparent spending is inappropriate from any angle. They suggest that regulatory oversight and audits can instead be conducted on such expenditures to resolve issues of transparency.

Former banker Bhuvan Dahal states that government spending of CSR funds contradicts the core principles of CSR itself. “If the government itself spends the CSR money, then it ceases to be CSR; they might as well just collect it as a tax instead,” he says. “I do not know what the model is abroad, but according to basic principles, when the owner of the money spends it based on societal needs, it aligns with the concept of CSR and increases effectiveness.”

Dahal expresses doubt that a bill containing such a provision will pass through Parliament. He says, “If this is the case, I do not think Members of Parliament will accept it either.”

He notes that institutions set aside and spend CSR funds because they hold themselves accountable to society. “There shouldn’t be a need to keep instructing them to do one percent, two percent, or three percent. They recognize on their own that they must spend for their responsibility in that society. The concept of CSR emerged from the idea that paying taxes to the state is not enough; we must also contribute directly to society,” says former banker Dahal.

File photo

The draft bill specifies that the government will establish a “Corporate Social Responsibility Fund” to collect and mobilize CSR money. It states that the Minister of Industry will serve as the coordinator of the fund. Furthermore, members of the fund will include the Secretary of the Office of the Prime Minister and Council of Ministers, the Secretary of the Ministry of Finance, the Secretary of the relevant ministry, the Secretary of the National Planning Commission, and a Deputy Governor of Nepal Rastra Bank. The Registrar of the Office of the Company Registrar is designated to serve as the Member-Secretary. Notably, there is no private sector representation in the fund.

Private sector objections

Private sector representatives express dissatisfaction with the law the government is attempting to introduce to redirect CSR funds into a government account. They state that converting a company’s voluntary social responsibility into a mandatory tax-like fund goes against the spirit of CSR.

President of the Nepal Chamber of Commerce Kamlesh Kumar Agrawal states that social responsibility—practiced since ancient times through religious avenues and now conducted institutionally as CSR—is a matter of autonomy and conviction for entrepreneurs and business owners. “The government can offer guidelines suggesting actions for employment creation, but it cannot curtail the autonomy of entrepreneurs and business owners,” he says. “The government should not move to restrict the autonomy of business leaders by placing the governing board under its sole control.”

Ministry of Law, Justice and Parliamentary Affairs. Photo source: Ministry of Law website

He emphasizes that according to international CSR norms, entrepreneurs and business owners should be allowed to spend social responsibility funds themselves. He expresses concern that if the proposed provision becomes law, institutions will lose the freedom to select projects based on needs through direct coordination with communities. He adds, “Once CSR funds reach government coffers, the role of the concerned institutions and companies in determining where and how the money is spent comes to an end.”

Agrawal states that CSR money required to be sent to a government fund should be understood as an “indirect tax.” He says, “The government’s role is to collect tax; as for CSR, the institution wishing to spend should be allowed to spend according to its own discretion.” He believes that mobilizing CSR funds under government authority imposes a double burden on business owners. He suggests the government reconsider the proposed matter, noting that such a provision sends a negative signal to both domestic and foreign investors.

Agrawal notes that business leaders have already discussed this matter with Finance Minister Swarnim Wagle.

Associate Professor of Corporate Law and Senior Advocate Lekhnath Adhikari also states that if the concerned institution does not spend the CSR funds itself, it violates the core philosophy of CSR. “CSR funds within institutions are meant to be spent at their own discretion. If the government demands that money for its own fund, it simply becomes a tax,” he says.

How might the requirement to deposit CSR funds into a government account impact the business environment? Senior Advocate Adhikari remarks that while the government can enforce payments into a fund by framing laws, the crucial question lies in what kind of culture it builds. “Enforcing a provision to send funds to a central pool strays outside the spirit and principle of CSR; the government should not head down that path,” he says.

In the view of Advocate Nabin Bhandari as well, because CSR funds represent an institution’s commitment, it is inappropriate for the government to take control of them. He states that such funds are most effective when spent directly by the concerned institution. According to him, CSR involves not just money, but services as well. He offers an example from his own law firm: “Under CSR, we offer free practical classes to law students, including running ‘moot courts’ to teach courtroom procedures and advocacy skills. Even if monetary figures aren’t attached, labor is invested, making it a form of CSR. If the government demands cash value for this as well, how would that even be possible?” he asks.

Advocate Bhandari believes it is best to find a middle ground that does not create hardship for institutions.

While the draft bill seeks to transform the concept of CSR, business owners and stakeholders advise that the government must proceed by considering how these changes will impact a liberal economy, private sector autonomy, the investment climate, and relationships with local communities.