The Kenya Revenue Authority (KRA) is seeking parliamentary approval to tax churches and Public Benefit Organisations (formerly NGOs) involved in business activities. This move comes as the KRA argues that many of these entities have strayed from their original charitable purposes and are now running commercial enterprises.
KRA is advocating for updates to the Income Tax Act (Charitable Organisations and Donations Exemptions) Rules 2024, which were published on June 18, 2024. These new rules replace the 2007 regulations and stipulate the criteria for tax exemptions for charitable organisations and the handling of donations for tax deductions.
The new rules aim to address the growing trend of churches and NGOs engaging in activities like commercial parking and hotel operations, which diverge from their charitable missions. KRA Deputy Commissioner Maurice Oray has urged the National Assembly Committee on Delegated Legislation to support these amendments, emphasizing the need for oversight of these organisations’ business activities.
Oray explained that while the law offers tax breaks to institutions involved in religion, education, and poverty alleviation, not all entities within these categories are eligible for exemptions. For example, schools run for profit do not qualify for tax benefits unless they reinvest their income into improving the learning environment. Similarly, churches that invest in commercial ventures, such as the Holy Family Basilica’s parking project, should be subject to taxation.
The new legislation will also allow taxpayers to claim deductions for donations made to registered charitable organisations. KRA proposes that donors receive an exemption certificate from the charities to use in their tax calculations.
However, MPs have expressed concerns over the proposed eTims Invoice system, questioning its practicality for small informal businesses. The Tax Procedures (Electronic Tax Invoices) Regulations 2024 mandate real-time invoice processing, which some legislators argue may not be feasible for all businesses.
