The government has proposed sweeping changes to corporate social responsibility (CSR) mobilisation by requiring companies to deposit their mandatory CSR allocations into a centrally managed government fund instead of spending the money directly on community projects. The move has triggered strong opposition from the private sector.

A draft bill to amend the Company Act prepared by the Ministry of Industry, Commerce and Supplies, is said to be a part of broader reforms aimed at promoting investment and making company administration simpler and more technology-friendly.

If endorsed, the draft would fundamentally alter Nepal's current CSR framework under which industries, banks and financial institutions spend part of their profits on projects benefiting communities affected by their operations. These typically include education, healthcare, environmental conservation, disaster response, sports promotion and local infrastructure.

Under the proposed law, companies would instead be required to deposit their CSR allocations into a Corporate Social Responsibility Fund to be established by the government. The fund would then finance projects selected under government priorities.

Under the draft bill, companies with an annual turnover exceeding Rs250 million will be required to deposit at least one percent of their annual net profit into the proposed Corporate Social Responsibility Fund each fiscal year. The proposal also requires companies with annual turnover below Rs250 million to contribute to the fund, although it does not specify how much they would be required to deposit.

The proposal has alarmed business leaders, who argue that CSR is a corporate responsibility rather than a government revenue source.

"This money is not a tax. It does not belong to the state," said Anjan Shrestha, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). "It is meant to address the impacts that businesses create in areas where they operate. It is about fulfilling corporate responsibility. CSR exists to strengthen responsible business practices, not to finance general social welfare."

According to Shrestha, the government can legitimately identify priority sectors for CSR spending but should not take direct control of the funds themselves.

"The private sector should continue implementing CSR programmes while complying with clear government guidelines," he said.

The proposed legislation establishes a governing board to administer the fund. The committee would be chaired by the minister for industry, commerce and supplies and include the secretaries of the Office of the Prime Minister and Council of Ministers, the Ministry of Finance, relevant ministries and the National Planning Commission, along with a deputy governor of Nepal Rastra Bank. The Registrar of Companies would serve as the member secretary.

Notably, the board contains no representatives from the private sector despite the fund being financed entirely by corporate contributions.

The committee would meet at least twice a year, approve annual programmes and budgets, coordinate with implementing agencies, monitor projects, review progress and issue policy directives. It would also prepare separate operational guidelines governing the management of the fund.

According to the draft, the fund could finance a broad range of activities, including education, healthcare, disaster risk reduction, humanitarian assistance, environmental conservation, disability support, income generation for socially marginalised communities, financial literacy, investor education, consumer protection, preservation of cultural heritage, restoration of national heritages and infrastructure development in remote areas.

It would also support schools and health institutions serving extremely poor communities, pandemic response, orphanages, elderly care homes, shelters for homeless people, organisations assisting survivors of human trafficking and domestic violence, animal rescue organisations, institutions carrying out nationally significant non-commercial innovations and other sectors designated by the government through the Nepal Gazette.

Organisations implementing CSR programmes would also be required to submit annual reports to the Office of the Company Registrar within three months of the end of each fiscal year detailing their activities, expenditure and measurable social impact.

Santosh Koirala, president of Nepal Bankers’ Association, questioned why the government wanted to assume direct control over money that companies were already spending after paying taxes.

"We contribute one percent of our post-tax profits to social causes," said Koirala. "If the government believes there are weaknesses or misuse in CSR spending, the answer is stronger regulation through the appropriate regulatory agencies. We support making the system more organised and transparent, but we do not agree with the government collecting and spending the money itself."

Nepal's CSR framework has evolved over the past decade. Section 54 of the Industrial Enterprises Act 2020 requires medium and large industries, as well as cottage and small industries with annual turnover exceeding Rs150 million, to allocate at least one percent of their annual net profit to CSR activities. The money must be spent under approved annual plans, while expenditure reports must be submitted to the relevant authority within six months after the end of each fiscal year. CSR expenditure is also recognised as a deductible business expense for income tax purposes.

The Industrial Enterprises Regulations further require CSR investments to prioritise low-income groups, rural women, persons with disabilities, minorities and marginalised communities through income generation and skills development programmes.

On May 5 last year, the ministry introduced the CSR Implementation Procedure-2025 to improve transparency, predictability and accountability. The procedure requires industries to spend at least half of their CSR budget in areas directly affected by their operations after consultation with local governments. Companies must prepare implementation plans detailing budgets, activities, timelines and expected outcomes and disclose CSR expenditure in their annual audit reports.

Nepal Rastra Bank has also tightened CSR governance for banks and financial institutions through revised guidelines requiring CSR spending to be transparent, effective and targeted. The central bank directs financial institutions to prioritise communities living in extreme poverty and requires at least 60 percent of annual CSR allocations to be spent within the same fiscal year.

Commercial banks alone reported combined profits of Rs71.51 billion last fiscal year, meaning they are expected to spend at least Rs715.1 million on CSR under the central bank's one-percent requirement. The figure would increase substantially after including development banks, finance companies and microfinance institutions. Comprehensive data on CSR spending by the industrial sector, however, are unavailable.

Internationally, CSR gained momentum after growing concerns in the 1990s about the social impacts of multinational corporations in developing countries. The endorsement of the UN Guiding Principles on Business and Human Rights by the United Nations Human Rights Council in 2011 further established global standards encouraging businesses to respect human rights while providing remedies for affected communities.

The government's proposal is expected to face intense scrutiny during consultations on the draft bill, with business groups likely to push for retaining companies' authority to implement CSR programmes while strengthening oversight rather than centralising control of corporate contributions.