Taxation of Public Benefit Organizations. Uphold public interest

Transcription

1 Taxation of Public Benefit Organizations Uphold public interest Presentation by: Caleb Mokaya Friday, 15 th September 2017

2 Presentation agenda Introduction Corporate Tax Consideration Tax Obligations General Tax Compliance

3 Introduction The hardest thing in the world to understand is the Income Tax. Albert Einstein

4 Introduction Whose is eligible to pay tax in Kenya? Are PBOs/NPOs subject to taxation in Kenya? Majority view on the taxation of PBOs

5 Legal Tax Framework Legislation governing taxation of NGOs/PBOs: The Income Tax Act; The Tax Procedures Act, 2015; The Value Added Tax Act, 2013; The Miscellaneous Fees and Levies Act, 2016; Excise Duty Act 2016; The East Africa Community Customs Management Act, 2004 (EACCMA); and The Stamp Duty Act.

6 Corporate Taxation

7 Imposition of Income Tax Subject to, and in accordance with the Income Tax Act(ITA), a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya Income upon which tax is chargeable under the ITA is income in respect of gains or profits from any business, for whatever period of time carried on business includes any trade, profession or vocation, and every manufacture, adventure and concern in the nature of trade, but does not include employment

8 Tax Exemption

9 Tax Exemption framework Tax exemption in Kenya is provided in the various tax legislation that impose the respective taxes. These are: The Income Tax Act; The Value Added Tax Act, 2013; The Miscellaneous Fees and Levies Act, 2016; The East Africa Community Customs Management Act, 2004 (EACCMA); and The Stamp Duty Act.

10 Income Tax exemption 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 is tax exempt. The institution above must be: established in Kenya; or whose regional headquarters is situated in Kenya, the Commissioner must be satisfied that the income: is to be expended in Kenya; or the expenditure of that income will result to benefit of the residents of Kenya.

11 Income Tax exemption cont d Any income which consists of gains or profits from a business shall not be exempt from tax unless those gains or profits are applied solely to those purposes and either; the business is carried on in the course of the actual execution of those purposes; or the work in connection with the business is mainly carried on by beneficiaries under those purposes; or the gains or profits consist of rents (including premiums or similar consideration in the nature of rent) received from the leasing or letting of land and chattels leased or let therewith.

12 Income Tax exemption cont d Tax exemption granted on this basis: shall be valid for a period of five years but may be revoked by the Commissioner for any just cause; and shall, where a NGO has complied with all the provided requirements, be issued within sixty days of the lodging of the application.

13 Income Tax exemption cont d Income Tax exemption application requirements: Certified copy of Trust Deed /Constitution of the NGO. Certified copy of Certificate of Incorporation/ Registration of the applicant; Certified true copy of the PIN Certificate of the applicant; A resolution of the applicant resolving to apply for income tax exemption; A profile of the applicant detailing its charitable activities and how these benefit the residents of Kenya; Recommendation letter from relevant regulatory board in support of our application;

14 Income Tax exemption cont d Income Tax exemption requirements: Letter from the Provincial Administration (D.C., D.O., or local Chief), evidencing the existence of the applicant and its activities; In case of a renewal, copy of the previous Certificate of Exemption; and Copies of the latest financial statements (profits and loss accounts/income and expenditure statements and balance sheet) of the applicant;

15 Corporate Tax Consideration

16 Tax treatment of Donations Cash Donations advanced to NGOs that meet the following requirements are tax deductible : Which is registered or exempt from registration under the Societies Act or the NGO Act Whose income is exempt from tax Donations made to the Kenya Red Cross, County Governments or other national disaster management bodies to alleviate the effects of calamities which have been declared national disasters by the President are also tax deductible.

17 Tax treatment of Donations cont d Income Tax (Charitable Donations) Regulations provide the following interpretations: approved project means a project approved by the CS; cash donation includes a donation given in form of a cheque; charitable organization means a non-profit making organization established in Kenya and which: (a) is of a public character; and (b) has been established for purposes of the relief of: poverty; distress of the public; or advancement of education or religion.

18 Tax treatment of Donations cont d The Regulations requires the donor to provide the following proof of donation to the Commissioner : The receipt issued and certified by the donee; a copy of the exemption certificate issued by the Commissioner to the charitable organization, or the Minister s approval of the project to which the donation is made; and a declaration from the donee that the donation shall be used exclusively for the objects of charity.

19 Tax treatment of Donations cont d The Regulations provide that donations made shall: be in cash and is non- repayable/non- refundable to the donor under any circumstance; not confer any direct or indirect benefit to the donor or any person associated to the donor; and be irrevocable once conferred upon a charitable organization, unless there is approval by the Commissioner. NB: In the event that the donations are revoked, the tax arising shall become due and payable.

20 Tax treatment of Donations cont d The receipt produced as proof of a donation shall have the following details- the full names and address of the donee; the Personal Identification Number (PIN) of the donee; date of donation; purpose for which the donation was made; and amount of donation.

21 Tax treatment of Donations cont d Additionally, the ITA provides for tax deductibility of expenditures of a capital nature incurred in the construction of: a public school; hospital; road; or any similar kind of social infrastructure NB: prior approval of the CS is a requirement for this deduction

22 Tax Obligations

23 Other Tax Obligations Charitable Trusts are not exempt from; Withholding Tax obligations. They should withholding tax while making payments to their suppliers PAYE obligations. The Charitable trusts should deduct and remit PAYE from employee emoluments Filing of annual self-assessment return. Charitable trusts should file the annual self- assessment return with the KRA

24 Other Tax Obligations Charitable Trusts are not expressly exempt from; Value Added Tax; Excise Duty; Customs Duty; Stamp duty; Capital gains Tax; and Other miscellaneous levies

25 General Tax Compliance.

26 General Tax Compliance

27 General Tax Compliance Offence Failure to apply for registration or licensing or deregistration Failure to keep documents Late Submission penalty Penalty KES 100,000 for each month not complied. The penalty shall not exceed KES 1,000,000. Higher of; 10% of tax payable under the tax law to which the documents relate; or KES 100,000 PAYE return- KES 10,000 or 25% of amount due, whichever is higher. Others; Higher of- 5% of amount of tax payable; or KES 20,000

28 General Tax Compliance Offence Penalty Failure to submit a document KES 1,000 for each day of default subject to a limit of KES 50,000. Tax Shortfall as a result of misleading statement or material omission made to authorized tax officer 75% of shortfall for deliberate statement or omissions 20% if statement is not deliberate NB: This penalty can be varied upwards by 10% if this is the second time and 25% where it is the third time. However, on self-disclosure the shortfall tax is reduced by 10%.

29 General Tax Compliance Offence Tax avoidance Penalty Double the amount of tax avoided Failure to comply with KES 100,000 electronic tax system Failure to honour the KES 10,000 for an individual and KES Commissioner s summons 100,000 for a company. Fraudulent claim for tax Double the amount claimed refund Use of false PIN or PIN Fine not exceeding KES 1,000,000 or 3 obtained fraudulently years imprisonment or both. Aiding or abetting an offence Same sanction as imposed for the principal offence

30 General Tax Compliance Taxpayers who commit offences are liable for penalties; imprisonment or; both penalties and imprisonment. The Commissioner has powers to compound offences. A taxpayer may apply to the Commissioner for remission of any penalties imposed under the Act, with the exception of penalties for tax avoidance. The Commissioner can remit the penalties upon obtaining approval from the Cabinet Secretary.

31 Think About it If you are paying tax on behalf of the other party, why should KRA treat it as your tax and still demand the tax and penalties on nonpayment? Tax not recovered is TAX ON THE AGENT even if such are personnel taxes e.g. PAYE

32 Q & A