The Kenya Revenue Authority (KRA) has called on lawmakers to approve the Income Tax Regulations, Charitable Organisations and Donations Exemptions.
in a bid to tighten the noose on churches and non-governmental organizations (NGOs) that are engaging in income-generating activities but are not paying taxes.
Commissioner General Humphrey Wattanga made this appeal during a meeting with members of Parliament’s delegated legislation committee, stressing that some organizations have strayed from their core charitable mandates and are now focusing on commercial ventures.
Wattanga emphasized the need for updated regulations to address the increasing number of exempt organizations that are operating businesses unrelated to their intended charitable purposes.
He noted that many of these entities are abusing the income tax exemptions granted under the law, and the KRA has faced numerous challenges in enforcing tax compliance.
The confusion, he explained, largely stems from differing interpretations of key terms outlined in paragraph 10 of the Income Tax Act (Cap 470), such as “charitable purposes,” “public benefit,” and “advancement of religion or education.”
“These differences in interpretation have led to widespread abuse of the exemptions.
Many organizations that are exempt from taxes have been running profitable businesses without redirecting the profits to their main charitable objectives,” Wattanga told the MPs.
The proposed regulations, published in June 2024 to replace the outdated 2007 regulations, aim to establish clearer guidelines for tax exemptions.
They seek to define crucial terms, set operational conditions for exempt organizations, and create boundaries for allowable activities.
According to Wattanga, the KRA wants to ensure that only organizations formed for purposes such as poverty relief, public distress relief, religious advancement, or educational advancement benefit from tax exemptions.
One of the key provisions in the new regulations would enable individuals who donate to charitable organizations to claim deductions on their taxes, provided that the receiving organizations are licensed under the Act.
This would formalize the process of ensuring that only legitimate charitable contributions are eligible for tax refunds.
Maurice Oray, KRA’s Deputy Commissioner, added that the regulations also target institutions that have veered too far from their original missions.
For instance, he mentioned organizations that are running commercial parking lots and other businesses unrelated to their exempted purposes.
While some educational institutions are eligible for tax exemptions, not all schools qualify, highlighting the need for a more structured approach to monitoring these exemptions.
“The rules are essential to regulate these activities, ensuring that only the intended charitable purposes benefit from tax exemptions,” Oray said.
The KRA has maintained that updating these rules is crucial to prevent the continued misuse of tax exemptions by organizations engaging in commercial ventures.
The push for the updated regulations is part of a broader effort to ensure tax fairness while safeguarding the integrity of charitable organizations.
The KRA remains optimistic that the legislative process will lead to the swift implementation of these changes, closing the loopholes that have allowed tax-exempt organizations to operate unchecked in the commercial sector.
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