Non-profit organisations (NPO's) including NGOs and religious organisations now command over $1 billion of Kenya's Gross Domestic Product (GDP). For any tax authority worth its salt, the possibilities are mouth watering. However, in its overzealous attempt at meeting annual targets Kenya Revenue Authority's appetite at expanding the tax base has resulted in casualties in this sector.
With the Government finding it increasingly difficult to meet its collection target, the taxman is adopting all tricks in the books to widen its tax base.
The non-profit sector's contribution to GDP is five per cent, which is why it was just a matter of time before they lost the tax-free sheen.
First, tax exemption is not a guarantee for the organisations. This assumption has now been put to rest by the introduction of a three-year exemption certificate thereby shortening the exception period as well as more stringent qualification criteria including filing a return and accounts to demonstrate the nature of the activities carried out. A list of present and past beneficiaries may also be required.
Second, even for those that are tax exempt, they are limited to ‘business level or corporation taxes since Pay As You Earn (PAYE), withholding and council taxes have to be accounted for.
Thirdly, imports of relief supplies without authorisation from treasury to waive duty and Value-Added-Tax (VAT) would be due and payable.
Legislation
Specific legislation reversals also come into play. For instance, effective June 15, 2007 VAT remissions for charitable institutions and projects funded through donations was withdrawn. Further to this, effective October 1, 2008 accommodation and restaurant services provided by registered charitable organisations are subject to VAT. This affected many religious institutions which are known to run guest houses across the country.
The pain does not end here. Contributions by individuals to worthy causes is not given due recognition since no relief can be obtained by an individual donor on their income statement while the relief is available for corporate donors. This is a double standard.
For employees of these organisations, the employer's tax exempt status starts becoming a liability as benefits that would ordinarily not attract a penny of benefit to the employee become assessable on them.
During the infamous bankers strike in 1998 the then Minister for Finance Simeon Nyachae introduced a regulation in which loans advanced by employers to employees at below market interest rates were to be treated as a benefit to the employee since the employer wasn't taxed at the corporate tax rate. This tax is called the Fringe Benefit Tax.
What does this mean? If your employer is an NPO, then this tax can only be borne by the employee, however, the law in some cases does not categorically prevent the employee from paying this tax directly to KRA.
Contributions to pension schemes is another area where employees get a raw deal. The contributions are considered a benefit to the employee. It is common for international NGOs to have a pension scheme that does not reside in Kenya and hence not recognised by the RBA and KRA.
As if this is not enough, any contributions made to this scheme by the NPE does not attract the monthly relief of Sh20,000 (F/Y 2009/10) that other employees and sole traders enjoy.
School fees provided to employees, is not considered a benefit for those in profit organisations since the firm bears the tax burden. For NPO's this may not be the case since the employer has no capacity to bear the tax burden due to its exempt status.
These inequities in the tax code may be a symptom of a bigger problem in the tax legislation since a section of the working population is disenfranchised.
This scenario has infuriated the donor institution. They wonder why liabilities are arising only in Kenya and not in other African countries.
　http://www.standardmedia.co.ke/InsidePage.php?id=2000010746&cid=14&j=&m=&d=
With the Government finding it increasingly difficult to meet its collection target, the taxman is adopting all tricks in the books to widen its tax base.
The non-profit sector's contribution to GDP is five per cent, which is why it was just a matter of time before they lost the tax-free sheen.
First, tax exemption is not a guarantee for the organisations. This assumption has now been put to rest by the introduction of a three-year exemption certificate thereby shortening the exception period as well as more stringent qualification criteria including filing a return and accounts to demonstrate the nature of the activities carried out. A list of present and past beneficiaries may also be required.
Second, even for those that are tax exempt, they are limited to ‘business level or corporation taxes since Pay As You Earn (PAYE), withholding and council taxes have to be accounted for.
Thirdly, imports of relief supplies without authorisation from treasury to waive duty and Value-Added-Tax (VAT) would be due and payable.
Legislation
Specific legislation reversals also come into play. For instance, effective June 15, 2007 VAT remissions for charitable institutions and projects funded through donations was withdrawn. Further to this, effective October 1, 2008 accommodation and restaurant services provided by registered charitable organisations are subject to VAT. This affected many religious institutions which are known to run guest houses across the country.
The pain does not end here. Contributions by individuals to worthy causes is not given due recognition since no relief can be obtained by an individual donor on their income statement while the relief is available for corporate donors. This is a double standard.
For employees of these organisations, the employer's tax exempt status starts becoming a liability as benefits that would ordinarily not attract a penny of benefit to the employee become assessable on them.
During the infamous bankers strike in 1998 the then Minister for Finance Simeon Nyachae introduced a regulation in which loans advanced by employers to employees at below market interest rates were to be treated as a benefit to the employee since the employer wasn't taxed at the corporate tax rate. This tax is called the Fringe Benefit Tax.
What does this mean? If your employer is an NPO, then this tax can only be borne by the employee, however, the law in some cases does not categorically prevent the employee from paying this tax directly to KRA.
Contributions to pension schemes is another area where employees get a raw deal. The contributions are considered a benefit to the employee. It is common for international NGOs to have a pension scheme that does not reside in Kenya and hence not recognised by the RBA and KRA.
As if this is not enough, any contributions made to this scheme by the NPE does not attract the monthly relief of Sh20,000 (F/Y 2009/10) that other employees and sole traders enjoy.
School fees provided to employees, is not considered a benefit for those in profit organisations since the firm bears the tax burden. For NPO's this may not be the case since the employer has no capacity to bear the tax burden due to its exempt status.
These inequities in the tax code may be a symptom of a bigger problem in the tax legislation since a section of the working population is disenfranchised.
This scenario has infuriated the donor institution. They wonder why liabilities are arising only in Kenya and not in other African countries.
　http://www.standardmedia.co.ke/InsidePage.php?id=2000010746&cid=14&j=&m=&d=
