Tax exemption criteria should protect public

 

 

 

 

By PAUL MUTEGI

The Kenya Income Tax Act exempts from taxation the income of any institution, body of persons, irrevocable trust, of a public character established solely for the purpose of the relief of poverty or distress of the public or for the advancement of religion or education.

This is as long as the institution is either established in Kenya or has its regional headquarters in Kenya.

The only proviso to these rather broad guidelines is that this income ought to be expended in Kenya, or in circumstances which benefit Kenyan citizens.

Admittedly, the ambit of this exemption can be revised, to include the advancement of research for medical purposes – such as cancer, lupus and HIV/Aids research – or the promotion of entrepreneurship.

Further, and more importantly, for the exemption to hold, these gains, if from a business, must be applied solely to these charitable ends and fulfil one of three conditions: the business must be conducted in the course of charity, the beneficiaries of the charity carry on the business and finally, the gains or profits consist of rent from the leasing of land.

Anecdotal evidence of how religious organizations run their business interests reveals that few, if any, are run by their beneficiaries or conducted in the course of their charity.

The Finance Act, 2012 extended the effective period of the tax exemption from three to five years, following an organisation’s application to the commissioner.

Compliance

This application process ensures that our hallowed religious organisations do not turn into a marketplace far removed from the economic reality of tax compliance faced by their industry peers.

The reason for this exemption is two-fold.

First, religious institutions all over the world have been a potent force for good – enabling economically marginalised communities break the cycle of poverty and restoring human dignity to the less fortunate and forgotten.

Secondly, religious organisations are not taxed because their income does not really constitute “income” in the strictest sense of the word – while businesses work to increase shareholder value, religious organisations seek to improve the lives of their congregants and spread their respective faiths.

However, this “tax haven” has seen the unprecedented emergence of sects, cults and belief systems with a massive following and veritable financial muscle.

By not taxing religious organisations that operate in the same economic circumstances as their otherwise regulated business competitors, these organizations are afforded a carte blanche in their operations.

KRA would be well served to enhance the tax exemption criteria by making it more thorough and in this way promoting and protecting the public interest.