Treasury tightens noose in purge on charity firms
The National Treasury building in this picture taken on June 15, 2023.
What you need to know:
- In the new rules, charity organisations are outlawed from accumulating surplus cash.
- Officials of charity organisations also face tougher scrutiny of the financial benefits derived from donations.
Charitable organisations face tougher terms of engagement, including caps on accumulated surplus funds and restricted income benefits by founders, as the State cracks down on suspected tax evasion through such agencies.
Proposed regulations by Treasury Cabinet Secretary Njuguna Ndung’u showed that charity organisations will be kept on a tight leash by the Kenya Revenue Authority (KRA) amid scrutiny of the defined engagements in communities and their tax obligations.
In the new rules, charity organisations are outlawed from accumulating surplus cash — targeting firms that may be soliciting funds for other personal benefits other than the needy groups listed in the funding proposals.
Diversion of donor funds
“A charitable organisation may accumulate surplus funds as desired, provided it shall not retain more than an average of fifteen percent of its funds in a period of three succeeding years, without applying it to its charitable purposes. Provided the surplus funds so retained do not include gains and profits arising from business,” Prof Ndung’u said.
Officials of charity organisations also face tougher scrutiny of the financial benefits derived from donations to limit abuse through the diversion of donor funds into personal benefits.
“A charitable organisation shall not distribute its income, directly or indirectly, to any person except for services rendered. Remuneration may, amongst other things, include amounts of income paid or payable by way of any salary, fee, bonus, wage, gratuity, pension, leave encashment, emolument, voluntary award, commission, annuity, stipend, overtime, superannuation allowance, retirement allowance, lump sum benefit payment and director's remuneration” the rules state.
“There must be a causal connection between the remuneration paid, in relation to the service rendered by that person and the amount generally charged for such a service in that sector.”
Tax deduction
“Donations shall be paid out of the income of the donor. For a donation to qualify for tax deduction under section 15(2) (w) of the Act, the donor shall provide proof of the donation and utilisation by the recipient to the Commissioner (KRA Commissioner).”
“Proof of the donation and its utilisation by the recipient required in sub-rule (2) shall be: (a) in the form of a receipt issued and certified by the recipient of the donation; (b) approved project proposals and budgets submitted by the charitable organisation and approved by the donor,” he added.
In the new rules, the Treasury said recipients of donations will be required to file a declaration that the donation shall be used exclusively for charity.
Donations made shall be in cash and shall not be repayable or refundable under any circumstance and not confer direct or indirect benefit to the donor or anyone associated with the donor.
