In Kenya, there seems to be a thin line between church and business. There is always a heated debate as to whether a church is a business venture or an avenue for one to replenish their souls with heavenly things. A thin line that has often confused even the mighty within the government. Should the church in Kenya pay taxes? People and authorities have been asking. Should they pay taxes for projects and programs run by faith-based organizations that generate revenue for the church and the organizations? Some think they should, and some think they shouldn’t.
When the government developed the tax compliance regulations for charitable organizations in Kenya, many found it difficult to understand them. The more they read the Income Tax (Charitable Organizations and Donation Exemption) Rules that came out on June 18, 2024, the more confused they became.
Through Legal Notice No. 105 of 2024, the Cabinet Secretary for National Treasury and Economic Planning officially kicked off the implementation of the reforms, which rescinded the Income Tax (Charitable Donations) Regulations from 2007.
Remember, these Charitable Organizations have been operating as free birds since time immemorial, then here comes some regulations that they found it hard to comprehend. To address this confusion, NCBA Bank, in their annual engagement, hosted a luncheon under the theme; Navigating Tax Reforms for Sustainability.”
NCBA brought in experts from within the bank and from the Kenya Revenue Authority (KRA), the custodian of revenue collection within Kenyan borders and without, Grant Thornton, and the Kenya Conference of Catholic Bishops.
“We recognize the vital role that faith-based institutions play in advancing social development, education, and humanitarian support… It is with this in mind that we hold annual forums like this, offering us the chance to engage with you, understand your challenges, and work together to co-create solutions,” NCBA Group Director Corporate Banking and Investment Advisory, Mr. Tirus Mwithiga, said.
During the engagement, it was deciphered that Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024, governs income tax on charities and donations and introduced a new cap on donation deductions (50 percent of total income), provided the deduction does not cause a taxable loss.
At the same time, business income is exempt if used solely for charitable purposes and operations that align with the organization’s stated charitable goals. Proof of donation, budgets, and exemption certificates are required. Charities can accumulate surplus funds up to 15 percent of total funds over three years.
“Give to Caesar what belongs to Caesar. Paying taxes is not just a legal obligation but a moral responsibility. Saint John Paul II called paying taxes an act of solidarity, as it contributes to the crucial assistance of those most in need,” said Apostolic Nuncio to Kenya and Sudan, H.E. Most Reverend Herbert van Megen.
According to Ms. Margaret Karanja, KRA’s Chief Manager, Exemption, Policy and Tax Advisory Division, poor documentation is a key challenge for faith-based institutions, mainly due to unclear interpretation of the recently introduced regulations. She said that to give room for organizations to read and understand, they were given 12 months to comply with the rules, a deadline fast approaching in June 2025.
KRA, on its part, assured the organizations that it had automated the application for income tax exemption certificates and encouraged institutions to stay updated and ensure proper documentation to benefit from exemptions.
“While it’s a delicate balance between enforcement & taxpayer willingness, the strong uptake of the new tax rules signals positive progress,” said Margaret.
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