The government is fast tightening taxation rules on charities and churches through the new measures announced in Thursday’s budget.
Finance Minister Njeru Githae tabled proposals to amend the Income Tax Act.
The amendments, anchored in the Finance Bill 2012, would see the mandate of issuing exemptions to taxations shift from the Kenya Revenue Authority (KRA) to the Ministry of Finance.
“It has come to my attention that KRA is facing challenges in determining institutions that qualify for exemptions while engaging in charitable activities,” he said.
The Finance minister will make the decisions on exemptions with advice from the tax czar.
The amendment also anchors into law the three-year lifetime of an exemption and the need for organizations to reapply six months before expiry.
“Mr Githae is seeking to harmonise the laws. As it stands, there is a lot of confusion in the sector that is leading to non-compliance,” said Mr Kariithi Murimi of the Institute of Certified Public Accountants of Kenya (ICPAK).
Paragraph 10 of the first schedule of the Income Tax Act makes provisions for organizations of a ‘public character’ to be exempted from taxation. These include trusts, churches and charities.
Over time, individuals and organisations have come to abuse this provision to import goods or conduct commercial activities under the guise of public benefit.
“Policing church and NGO income will definitely become more stringent. The minister is seeking to minimise exemptions,” said PriceWaterhouseCoopers partner Stephen Okello.
NGOs have become a Sh130 billion industry, growing from 100 the 1990s to the current 6,000.It is difficult to ascertain which ones are genuine.
“In most cases, the objectives of benefiting the public are not achieved. Individuals use the tax exemptions for their own profit,” said KRA spokesperson, Mr Kennedy Onyonyi.