KRA Seeks Parliament Approval To Tax Churches And NGOs

Kenya Revenue Authority (KRA) now wants lawmakers to approve the Income Tax Regulations (Charitable Organisations and Donations Exemptions) to allow it crack the whip on churches and NGOs which have engaged in income generating business and are not paying taxes.

Commissioner General Humphrey Wattanga told MPs who sit in the delegated legislation committee that some of the organisations had moved away from their core mandate and are now engaging in businesses that generate income.

He told the MPs that the authority had faced a lot of challenges in implementing paragraph 10 of the Income Tax Act (Cap 470) that outlines guidelines on the applications, processing and granting of income tax exemptions due to differences in interpretation by the taxpayers and the authority.

Charitable purposes

He specifically said that the differences had emerged with regards to interpretation of terms such as public character, charitable purposes, public benefit, relief of poverty, distress in public, advancement or religion or education following the exemption granted under the Income Tax act.

He said: “These differences in interpretation have in most instances led to abuse of exemption by the organisations. For instance, many exempt organisations are engaging in businesses which are unrelated to charitable purposes for which they are established to undertake without ploughing back such gains to the main objectives of the organization.”

He added: “The rules begin by providing interpretation of some of the terms used therein. Specifically the terms which have been interpreted differently by the authority and the taxpayers. The rules further outline the requirements for exemption and the conditions that the organisations must meet to benefit from exemption. These conditions include the organisation and operational conditions. These conditions are necessary as they set the boundary within which the exemption will be granted.”

Wattanga regretted that despite the times changing, the said rules have never changed and thus the authority wants to be allowed circumstances under which they shall consider a charitable purpose and activities.

The Income Tax Act (Charitable Organisations and Donations Exemptions) Rules 2024 which were published on 18 June 2024, replacing the 2007 regulations outline the requirements to be met by a charitable organization to qualify for a tax exemption on their income and to outline how donations to these organizations can be considered for tax deductions.

He said: “The rules provide that the income of an organisation be exempt if it is formed for purposes of relief of poverty, relief of distress of the public, advancement of religion or advancement of education.”

Maurice Oray, KRA Deputy Commissioner said that although there are laws that allow certain organisations to benefit from tax exemptions, he said there is a need to regulate their activities. The new regulations target institutions that have invested in commercial parking lots which is away from the core mandate of which they’ve been exempted from taxation. For instance, he said that despite tax exemptions being granted to educational institutions, this provision is not given to all schools

Exempt under the Act

He said: “There is a need to ensure that their activities are regulated as much as they are provided for in the Act.”

In the new legislation, KRA said that those who have channelled their contributions to the organisations that have been licensed for charity, will going forward be able to claim the same in refunds.

He said: “If the donations are made to a body that is exempt under the Act, then you can claim that as a deduction in your tax computation. If the reduction is from your income tax, that person must be registered and they have a certificate. “