Kenya Revenue Authority (KRA) is pushing for new legislation aimed at cleaning up the activities of charitable organisations to enhance transparency and curb potential abuse of privileges.

The proposed regulations underscore the importance of preventing exploitation of these entities for private benefit while ensuring that they adhere to strict criteria for tax exemption.

The draft regulation explicitly prohibits the use of charitable organisations for personal gain, emphasising their commitment to serving public interests.

Adminstrative rules

To qualify for tax exemption, organisations must align their activities with specific purposes, including poverty relief, the advancement of religion, the advancement of education, and responding to public distress upon government declaration.

One key provision in the proposed legislation restricts charitable organisations from accumulating excess funds beyond a specified limit.

 According to the draft, such entities are allowed to accrue surplus cash, but they are prohibited from holding more than 15 per cent of funds for a consecutive period of three years. Importantly, the definition of surplus excludes gains and profits, highlighting a focus on genuine charitable activities rather than financial gains.

Further, the regulations are designed to prevent charitable organizations from being misused for tax avoidance purposes. The proposed rules make it clear that these entities must not allow themselves to be instrumental in any form of tax evasion. This move aims to align the sector with broader fiscal responsibility and prevent the exploitation of charitable status for personal financial gain.

As part of the heightened oversight, donors wishing to claim tax deductions for their charitable contributions will be subject to additional requirements.  This mandatory reporting mechanism ensures that tax incentives are granted only to genuine charitable activities, reinforcing accountability within the sector.

“In compliance with the Statutory Instruments Act, 2013 the Commissioner General on behalf of the Cabinet Secretary, National Treasury and Economic Planning, has developed the Draft Income Tax (Donations and Charitable Organisations Exemption) Rules, 2023,” KRA said in its website.

“The Rules provide guidelines and administrative procedures to be applied in granting exemptions to charitable organisations and further gives guidance on donations to such institutions,” the taxman added.

KRA which is targeting to collect Sh3.7 trillion this financial year is reaching far and wide to curb tax evasion and widen the country’s tax base.

The KRA’s initiative reflects a broader commitment to fostering a culture of transparency and accountability within charitable organizations. By setting clear guidelines and stringent oversight mechanisms, the proposed regulations aim to balance the incentives for charitable giving with the need to prevent misuse and maintain the integrity of the sector.

As the public awaits the finalization and implementation of these regulations, it is evident that the KRA is taking proactive steps to safeguard the interests of both donors and the broader public..