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Legal Opinion: is your NGO's income taxable under Kenyan laws

The income of an NGO in Kenya that originates from Kenya through a business or income generating activity is taxable unless specifically exempted from tax.

The NGO has to provide proof that the gains or profits from the income generating activity are applied solely to the purposes for which the NGO runs and not for enriching the members of the NGO.

An NGO which runs an income generating activity can apply to the Commissioner of Income Tax for an Income Tax Exemption Certificate. This certificate qualifies the NGO to make profits and plough them back to the NGO for sustainability without paying taxes on such profits.

The certificate is valid for five years and is renewable upon expiry of its term.

Income Tax Exemption application process

1.  Lodging an application for Income Tax Exemption with KRA station (PIN base).
2.  Assigning of a file to a KRA Officer who will be handling the income tax exemption application.
3.  Following up the matter with KRA officer handling the matter.
4.  KRA inspects affairs of the Client.
5.  KRA Officer issues a report of the inspection either recommending for Tax audit or the organization be granted   an income tax exemption certificate.
6.  If the recommendation is that the organization be given an income tax exemption certificate, then:-

1. The Station Officer forwards the recommendation report to KRA head office for approval.
2. Following up the matter with KRA Head office.
3. If KRA Officers in charge of giving income tax exemption certificate agrees with the recommendation from the station officers, a certificate of tax exemption is granted otherwise, the matter is returned to the station giving the reasons of not granting the exemption.
4. The station writes to the client citing the reasons why the exemption was not granted.

7.  If the recommendation is  to carry out an audit , then:-

1. KRA station writes a notice of intention to audit the affairs of the client.
2. KRA officers conduct an audit.
3. KRA issues a report of findings.
4. Discussions with KRA.
5. If the client agrees with KRAs assessment, and tax dues arise, principal tax is paid. Interest and penalties can be appealed for.
6. Writing a letter for mitigation of waiver for interest and penalties.
7. Follow-up on the letter of waiver of interest and penalties.
8. Response from KRA – Commissioner of Taxes on how much interest and penalties has been waived. The client pays for part not waived.
9. A recommendation by the station officer is written to KRA head office requesting for the organization to be granted an exemption certificate.
10. The income tax exemption certificate is granted. The exemption certificate is currently operational for five years.

KRA’s checklist for Income Tax Exemption Application

Copies of the following documents are required:-

1. Registration Certificate from relevant governing body;
2. Signed copy of Constitution / Trust Deed / Rules and regulations. Any amendments to the       constitution or Trust Deed;
3. Signed Audited accounts accompanied by signed Returns IT2C (forms) for the last three years;
4. Personal Identification Number (PIN);
5. Letter from provincial administration confirming existence and activities of the organization;
6. Bank Statements for the last three years;
7. PAYE records for the last three years;
8. Evidence of operations through activity photos, brochures;
9. Copy of previous exemption certificate for renewal cases;
10. Any other relevant document

NB: please note that the timelines for the process cannot be strictly outlined since most work will be done by KRA Officials.

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