NCBA Meets Religious Organizations On New Tax Compliance Regulations

NCBA hosted its annual engagement with faith-based institutions at a luncheon themed “Navigating Tax Reforms for Sustainability”, where the recent tax compliance regulations for charitable organizations were discussed.

Many charitable institutions have experienced difficulties following the gazettal of the Income Tax (Charitable Organizations and Donations Exemption) Rules on June 18, 2024. Through Legal Notice No. 105 of 2024, the Cabinet Secretary for National Treasury and Economic Planning implemented new reforms, which rescinded the Income Tax (Charitable Donations) Regulations from 2007.

Speaking during the luncheon, NCBA Group Director Corporate Banking and Investment Advisory, Mr. Tirus Mwithiga said, “We recognize the vital role that faith-based institutions play in advancing social development, education, and humanitarian support. This is why we remain committed to nurturing long-term partnerships, not just as a financial service provider but as a partner in driving positive societal impact. It is with this in mind that we hold annual forums like this, offering us the chance to engage with you, understand your challenges, and work together to co-create solutions. As a fully-fledged financial institution, it is our role to walk with our customers and offer advisory services to ensure the sustainability of their work.”

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He also emphasized the need for partners to collectively drive capacity-building efforts to improve compliance.

The Income Tax (Charitable Organizations and Donations Exemption) Rules, 2024, governs income tax on charities and donations and introduced a new cap on donation deductions (50% of total income), provided the deduction does not cause a taxable loss. Business income is exempt if used solely for charitable purposes and operations align with the organization’s stated charitable goals. Proof of donation, budgets, and exemption certificates are required. Charities can accumulate surplus funds up to 15% of total funds over three years.

Ms. Margaret Karanja, KRA’s Chief Manager, Exemption, Policy and Tax Advisory Division, speaking during the forum highlighted poor documentation as a key challenge for faith-based institutions, mainly due to unclear interpretation of the recently introduced regulations, Organizations were given 12 months to comply with the rules, a deadline fast approaching in June 2025.

The exemption of earned income remains complex and requires careful compliance. Exempted institutions must operate for public benefit (poverty relief, education, religion), be based or headquartered in Kenya, and meet organizational and operational tests.

She also updated that KRA has automated the application for income tax exemption certificates and encouraged institutions to stay updated and ensure proper documentation to benefit from exemptions. “While it’s a delicate balance between enforcement & taxpayer willingness, the strong uptake of the new tax rules signals positive progress,” she stated.

Speaking during the forum, the Apostolic Nuncio to Kenya and Sudan, H.E. Most Reverend Herbert van Megen, said, “Give to Caesar what belongs to Caesar. Paying taxes is not just a legal obligation but a moral responsibility. Saint John Paul II called paying taxes an act of solidarity, as it contributes to the crucial assistance of those most in need.”

He went on to say that while the Catholic Church supports the payment of taxes, it also calls for ethical considerations in how taxes are levied and spent. Taxes should be used for the common good that strengthens human development.

The forum brought together expert pannellists from KRA, Grant Thornton, and the Kenya Conference of Catholic Bishops, demonstrating NCBA’s dedication to supporting faith-based and charitable institutions through clear guidance, enabling them to handle tax reforms and adopt contemporary methods.  Compliance training focuses on two main points, which consist of showing how to maintain charitable purpose focus of received income. The financial institutions’ staff will support organizations through tax exemption applications while helping them fulfill each requirement and deadline.

NCBA aims to clarify the practical implications of these regulations on financial reporting and transparency, ensuring these institutions remain compliant while continuing their services without disruption. NCBA will continue to provide strategies to help these institutions manage compliance and maintain financial sustainability.

Beyond providing practical assistance, NCBA is dedicated to enhancing its relationships with its clients and endeavours to hold such forums to tackle current challenges and lay the foundation for long-lasting collaborations, allowing the organizations to prosper while continuing with their essential contributions to society.

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