Stricter restrictions should be imposed on the current tax exemption criteria for nonprofit organizations, as many NPOs take advantage of the system and retain enormous profits, a working group of the government Tax Commission said Friday.

“If these bodies compete with companies in the private sector and retain their profits (without being taxed), the system should be reformed,” said Naoki Inose, a writer and member of the working group, which is headed by Tadatsune Mizuno, professor of Hitotsubashi University.

The government’s data show that 37.1 percent of the nation’s 26,183 NPOs retain 30 percent or more of their expenses as internal reserves. According to operating guidelines, they are meant to retain 30 percent or less of their expenses.

The data also show that 12.8 percent of NPOs keep more than 100 million yen in internal reserves.

Under the current system, only NPOs that fit into any of 33 business categories set by the government must pay corporate tax.

More NPOs should be taxed, Inose said, adding that the number of such business categories should be increased to as many as 50.

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