Did you know that donating to a charitable organization could earn you an income tax deduction from the Kenya Revenue Authority? Thanks to the less spoken of Income Tax Act Cap 470 (Charitable Donations Regulations, 2007). Under regulations contained in this act, individuals and corporations generally can deduct any cash donations to a charitable organization from their income tax. The charitable organization must however be registered or exempt from registration under the Societies Act, the NGO Act 1990, or the PBO Act, and its income exempt from tax.
When asked what would be the greatest incentive for institutional philanthropy, respondents in a survey carried out by the Kenya Community Development Foundation noted that tax incentives, similar to what is available in the west, would encourage more Kenyans to give to charity ( Creating an Enabling Environment For Philanthropy Through Tax Incentives, 2014). However, few people know that these incentives have existed in Kenya since January 2007, when the Income Tax Act Cap 470 was established. The regulations came about largely due to the efforts of the East Africa Association of Grantmakers (EAAG) in collaboration with key stakeholders including the Kenya Private Sector Alliance (KEPSA) who persuaded the Government to provide tax incentives to enable Kenyans to give.
The Act further allows for tax deductions on expenditures for any project approved by the Cabinet Secretary of Finance. This means that expenditures of a capital nature by a person on the construction of a public school, hospital, road, or any similar kind of social infrastructure can be deducted as well. It also allows for tax deductibility for expenditures on scientific research, including donations to approved scientific research institutes or universities, provided that certain conditions are satisfied.
EAAG CEO Evans Okinyi explains the process of claiming deductions on charitable donations as simple, but largely unknown to Kenyans. In an article shared with Yetu, he notes that under these regulations, those who give cash donations to tax exempt non- profit bodies are entitled to deduct 100% of the donation from their income before arriving at their taxable income. For cash donations to qualify under these regulations, the donor, in this case the individual or business entity must not expect any benefit as a result of their donation. Donations must be in cash or in form of a cheque. When a donation is made to a tax exempt non- profit organization, the said organization must give the donor a receipt for the amount of money donated and indicate the project to which that money will be spent on, a copy of the tax exemption certificate and a declaration stating that the money donated will be used exclusively for the purposes of the charity. At the point of making returns to KRA, the donor will compute all the cash donations made to tax- exempt non – profit organizations and deduct this from your income before arriving at the taxable income for the year. By providing proof that you made donations (by attaching the documents stated above), you are able to make claims for a return for higher tax paid where this applies.
As you ponder over ways to give back in 2017, it may be worthwhile to consider partnering with a local charitable organization working in your community as an individual or business donor. Not only will your contribution earn you tax benefits, it will also impact the community on a wider scale as many charitable organizations have greater reach and a more long-term approach to community development.