Income Tax (Donations & Charitable Organisations) Rules, 2023

Jan 30, 2024 | Finance, Law

The Income Tax (Donations & Charitable Organisations Exemption) Rules, 2023 (hereinafter referred to as the “Rules”) guide donors and provide guidelines as well as the administrative procedure to be followed in granting exemptions to charitable organisations in the course of donations.

To begin with, the Rules state that the Commissioner has the power to consider what counts as a charitable organisation. A charitable organisation is considered under the Act when founded and operated solely for charitable purposes with clearly defined goals. It is important to note that the organization’s charitable purposes are directed towards public rather than private benefit.

The Rules further provide an organizational structure and a rubric for operational activities for charitable organizations. The organizations’ assets must be used for charitable purposes, and the governing documents ought to limit their objectives to one or more charitable purposes and, as aforementioned, restrict private benefit. In conducting their activity, the organizations’ primary concern should be ensuring the fulfillment of their charitable purpose. These charitable activities must be conducted within Kenya to benefit Kenyan residents.

To prevent ambiguity on what public benefit entails, the Rules have stated that the Commissioner shall consider an organization’s purpose and activities to be directed towards public benefit if such purposes and activities provide demonstrably beneficial outcomes for identifiable beneficiaries. Furthermore, the benefits related to the organization’s purpose reach a sufficient section of the public. Examples of these charitable purposes are: the relief of poverty, the relief of public distress, the advancement of religion, and the advancement of education.

The Rules mention that charitable organizations are barred from being parties to be used for any transaction whose sole purpose is to reduce or avoid any tax, duty, or levy that would otherwise have been payable by any person under the Act or under any other Act administered by the Commissioner. There is also an application process for exemption from any payment of tax, duty, or levy set out in the Rules to guide the process for which charitable organizations will apply. However, it is essential to note that this exemption is not absolute and could be revoked by the powers vested in the Commissioner under special circumstances.

There are rules on donations which are provided by the Rules. To claim tax deductions, donors must provide proof of the donation and its utilization by the recipient, along with the recipient’s compliance with specific rules. Acceptable proof includes receipts, approved project proposals, and compliance with surplus accumulation requirements. Receipts and other documents must include details like recipient information, date, purpose, and amount of the donation.

In conclusion, this summary concisely overviews the key rules and requirements for charitable organizations seeking tax exemption in Kenya. It highlights eligibility criteria, restrictions, application process, exemption details, ongoing requirements, revocation possibilities, and appeals procedures.