The Kenya Revenue Authority (KRA) now wants lawmakers to approve the Income Tax Regulations (Charitable Organisations and Donations Exemptions) to enforce strict measures against churches, mosques, and NGOs that have engaged in income-generating businesses without paying taxes.
KRA wants MPs’ approval to enable it to tax churches, mosques, and public benefit organisations (formerly NGOs) engaging in businesses.
Commissioner General Humphrey Wattanga told legislators in the delegated legislation committee that some of the organizations 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), which outlines guidelines on the applications, processing, and granting of income tax exemptions due to differences in interpretation between the taxpayers and the authority.
He specifically stated that following the Income Tax Act’s exemption, differences had emerged in the interpretation of terms such as public character, charitable purposes, public benefit, relief of poverty, public distress, advancement, religion, or education.
He said: “These differences in interpretation have in most instances led to abuse of exemption by the organisations. For example, many exempt organisations engage in businesses unrelated to their established charitable purposes without reinvesting these gains back into their primary objectives.
He continued, “The rules begin by providing an interpretation of some of the terms used therein.”
“The authority and the taxpayers have interpreted certain terms differently. The rules further outline the requirements for exemption and the conditions that the organizations must meet to benefit from it.
“These conditions are both organisational and operational. These conditions are crucial because they establish the parameters for granting the exemption.”
Wattanga expressed regret that, despite the passage of time, the aforementioned regulations remain unchanged, prompting the authority to request permission to consider charitable purposes and activities.
The Income Tax Act (Charitable Organisations and Donations Exemptions) Rules 2024, which replaced the 2007 regulations, outline the requirements a charitable organisation must meet to qualify for a tax exemption on their income, as well as how donations to these organisations can be considered for tax deductions.
“The rules provide that an organisation’s income be exempt if it is formed for purposes of alleviating poverty, alleviating public distress, advancing religion, or advancing education,” he said.
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 specifically target institutions that have made investments in commercial parking lots, which deviate from their primary purpose of exemption from taxation. He stated that while educational institutions receive tax exemptions, not all schools benefit from this provision.
He said, “There is a need to ensure that their activities are regulated as much as they are provided for in the Act.”
According to the new legislation, individuals who have channelled their contributions to licensed charities will now be eligible for refunds.
“If you make donations to a body that is exempt under the Act, you can claim that as a deduction in your tax computation,” he said. If the reduction comes from your income tax, you must register the person and ensure they have a certificate.
