Treasury unlocks charity billions with new tax rule

Treasury Cabinet Secretary Ukur Yatani.

National Treasury Cabinet Secretary Ukur Yatani.

Photo credit: File | Nation Media Group

 The Treasury has expanded the list of firms that qualify for tax exemption for cash donated to charity, boosting financial support to poor and vulnerable Kenyans.

In changes through the Income Tax Act (ITA), the Treasury said all firms making donations to charity organisations registered under the Companies Act, the Societies Act or the Non-Governmental Organisations (NGO) Coordination Act would qualify for tax relief.

Previously, firms donating to entities that were not registered under the Societies Act or the NGOs Coordination Act could not claim a deduction of the cash donations against their taxable income.  This, therefore, discouraged donations to such otherwise charitable organisations.

“The amendment is a recognition that an increasing number of charitable organisations are being registered under other legal regimes such as the Companies Act 2015 which provides for Companies Limited by Guarantee and the Trustees (Perpetual Succession),” analysts at a law firm, Bowmans said in a brief on the amendments through Section 15 of the ITA.

Economic contribution

“Going forward, donations to charitable organisations which are exempt from tax under Paragraph 10 of the first schedule to the ITA will be tax-deductible. This will hopefully increase donations to charitable organisations,” they added.

A slowed global economy in recent years coupled with the financial fallout of the Covid-19 pandemic has dried up donor taps with charity firms being left with minimal or no resources to support vulnerable groups in Kenya.

The charity sector contributes immensely to the Kenyan economy in various ways, for instance, in job creation with the latest available data by the NGO Board Kenya showing that in the 2019/20 financial year alone, NGOs engaged 80,299 employees.

According to the regulator, the 2,816 NGOs active in Kenya received Sh158.7billion in the financial year 2019/2020—a four percent decrease from the Sh165.9billion reported in the previous year.

Big beneficiaries

During the 2019/20 fiscal year, NGOs spent Sh84.4billion on project implementation, with 75 percent of the amount or Sh63.6 billion going to projects in Kenya. This was a 19 percent decrease from the previous year’s Sh78.8 billion expenditure.

The NGO Board data shows that the most funded sector was health at 33 percent, followed by Education at 14 percent and children at 13 percent.  Relief and disaster support took up eight percent of the amount.

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