TAX EXEMPTIONS IN KENYA: A SYNOPSIS

The subject of tax exemption in Kenya continues to attract great attention from various stakeholders. This is largely guided by their particular interest. To the government, the main concern is how exemption from payment of tax affects revenue inflows, encourage provision of necessary services the government is constrained to achieve from its resources, achieve specific economic and social goals with broad developmental impact,

Legal Forms.

These organizations may be formed under different laws, the main ones being;

1. The Public Benefits Organizations ACT
2. The Societies ACT
3. The Trust ACT
4. Company limited by guarantee without a share capital
5. Community Based Organizations registered under PBO ACT
6. Certificate of Exemption from Registration (particularly for International Charity Organizations with a permanent establishment or Regional Headquarters in Kenya)
7. Any other law currently in force in Kenya

Exemption from Tax

Under the Income Tax ACT, exemption from payment of Income Tax is provided for in Sections 13 and 14 of the Income Tax ACT, CAP 470 LAWS OF KENYA.

Paragraph 10 of the first schedule to the Income Tax ACT states that the income of an institution, body of persons, or irrevocable trust, of a public character established solely for the purposes of the relief of the poverty or distress of the public, or for the advancement of religion or education:

The first schedule to the income tax act further lists such incomes and/or persons whose income is exempt from tax subject to satisfaction of the conditions specific to any of the income or person seeking for exemption.

Thirteenth schedule to the Income Tax ACT further lists exempt persons in tandem with Sections 13 and 14. The exemptions listed herein upon gazzettement by the Minister as per sections 13 and 14 and paragraphs 1 and 2 of the first schedule.

Exemptions covered under paragraph 10 of the first schedule to the Income Tax ACT, CAP 470 LAWS OF KENYA.

Paragraph 10 covers a broad range of persons in the religious, educational, social and environmental sectors of the society.

Basic conditions for consideration for exemption are:

1. Type or form of legal person
2. Character – public
3. Targeted on the relief of poverty or distress of the public, advancement of religion or education;
4. Must be established in Kenya or have the regional headquarters in Kenya
5. The Commissioner is satisfied that the income is to be expended either in Kenya or in circumstances in which the expenditure of that income is for purposes which result in the benefit of the residents of Kenya:

1. PUBLIC BENEFITS ORGANIZATION ACT, 2013 became operational through the publication of Legal Notice No 78 on 14^th May 2024.
2. Paragraph 1 of the second schedule to the PBO ACT, 2013 espouses a benefit for PBOs to be granted Income Tax Exemption from;
3. income tax on income received from membership subscriptions and any donations or grants;
4.  income tax on income acquired from the active conduct of income producing activities if the income is wholly used to support the public benefit purposes for which the organization was established;
5. tax on interest and dividends on investments and gains earned on assets or the sale of assets; stamp duty;
6. court fees.

The definition of “public benefit activity” according to the PBO ACT is an activity that supports or promotes public benefit by enhancing or promoting the economic, environmental, social or cultural development or protecting the environment or lobbying or advocating on issues of general public interest or the interest or well-being of the general public or a category of individuals or organizations;

Requirements needed in applying for Exemption

To facilitate the process of exemption, KRA has developed a checklist against which those seeking to be confirmed exempt should endeavor to satisfy by the time they make an application for exemption. Once these are met, KRA is then able to move internal processes to confirm that the applicant merits exemption status.

S/NO	REQUREMENT	YES	NO	N/A	Remarks
1.	Letter of application for income tax status
2.	Certificate of registration
3.	Copy of the constitution and a proper Dissolution clause (where applicable)
4.	Copy of PIN
5.	Copy of expired exemption cert (where applicable)
6.	Letter from government official / county official
7.	Photos of activities undertaken
8.	Annual Returns-
9.	Audited accounts
10.	Bank statements
11.	Physical Inspection Report
12.	Note of interview

When an application has been made and evaluated to satisfy the checklist and the Commissioner is satisfied that the organization merits exemption, the Commissioner shall cause a Certificate of Exemption be issued to the Organization as the case may be. The exemption Certificate is valid for 5 years from the date of issue or such other date if the case was for renewal of exemption status