Zerodha CEO questions 2% CSR rule, suggests higher corporate tax

Zerodha CEO Nithin Kamath has questioned the effectiveness of the 2% CSR rule, proposing a higher corporate tax instead. He argues this could lead to more even resource distribution and focus on long-term impact rather than just meeting spending targets.

Zerodha CEO Nithin Kamath has questioned whether the mandatory 2 per cent corporate social responsibility (CSR) spending requirement is the most effective way to create social impact, suggesting that a higher corporate tax rate could instead allow the government to allocate resources more evenly.

In a post on X, Kamath said the focus should shift from the amount companies spend on CSR to the long-term impact created by that spending. “At Zerodha, we've allocated ~10% of our profits towards what we call ‘investing for the future,’ mostly through the @RainmatterOrg. The keyword for me is investing,” Kamath said.

Challenges with the Current CSR Model

Geographical Imbalance and Lack of Expertise

He argued that many businesses may not have the expertise or resources to determine which projects can generate the greatest social impact, potentially leading companies to focus on projects in areas where they operate. Kamath said this could contribute to CSR spending being concentrated in states such as Maharashtra, Gujarat and Delhi, while areas that may have greater needs receive less funding.

Focus on Short-Term Metrics vs. Long-Term Impact

He also raised concerns about how CSR outcomes are measured, saying businesses can have a bias towards short-term targets even though social problems often require longer-term efforts. “For example, planting X lakh trees makes for a great CSR target. But what matters is whether the species planted are native and whether those trees survive for, say, 10 years,” he said. Similarly, he said building a school may be easy to measure, but the more important outcome is whether children are actually learning.

Risk of Misused Funds

Kamath also flagged the possibility of CSR spending becoming focused on deploying a prescribed budget rather than solving social problems. “The more the goal becomes deploying a budget rather than solving a problem, the greater the risk of money being wasted or misused,” he said.

An Alternative: Higher Corporate Tax

As an alternative, Kamath suggested that corporate tax could be increased to 27 per cent from 25 per cent, with the government allocating the additional funds to areas where they could create greater impact. “In theory, this could spread resources more evenly across the country rather than concentrating them wherever profitable companies happen to be,” he said.

The 'Anchoring' Effect of the 2% Rule

However, Kamath further pointed to what he described as an unintended “anchoring” effect of the 2 per cent requirement. Companies may treat 2 per cent as a target rather than a minimum, he said, even when they might otherwise choose to spend more during profitable periods.

“Maybe the real question shouldn't be how much companies spend on CSR. It should be how much long-term impact the money creates,” Kamath said.

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)