Giving unto Ceaser: Churches fail to render what’s due to taxman

Tithe basket. [Courtesy]

The proposal to increase oversight on religious organisations while getting them to pay their fair share of taxes on their commercial activities has always been a touchy issue.

On the one hand, religious organisations have immense political goodwill, possibly because they are fertile hunting grounds for votes by politicians.

On the other hand, many Kenyans are deeply religious and will gladly defend any perceived affront on the church, including any proposal to increase oversight by the State.

Numerous attempts by the Kenya Revenue Authority (KRA) and the National Treasury to have religious organisations comply with tax laws, particularly on non-exempt activities, have come a cropper. The same goes for attempts at putting religious organisations under increased regulatory watch.

Such was the case in 2016 when the State Law Office published draft rules on religious organisations that elicited sharp protests by the clergy, who insisted they could self-regulate.

The government said at the time the draft rules were aimed at weeding out individuals commercialising churches as well as those using mosques as breeding grounds for terrorists.

This is just one of the numerous instances where the State has tried to increase its oversight on religious activities.

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Churches are regulated under the Societies Act, which critics deem too general and ineffective in the wake of mushrooming churches in the country.

And while churches and church employees - including the clergy - pay individual income taxes, there are numerous times where they pass their commercial activities as religious or charitable activities to avoid paying taxes. Churches are exempt from income tax on such revenue as tithes, offerings and donations. 

Lawyer Martha Waweru noted that while the state has mechanisms of regulating churches, more should be done to check the excesses of some religious leaders.

“The ante should be amplified for such registered churches to also fall under the purview and authority of the Public Benefits Organisations (PBOs). This aspect would ensure that there is a wider scope to scrutinise and check the churches’ affairs and compliance for the public good,” said Ms Waweru.

The Public Benefit Organisations Act, 2013 set up a regulator (the PBO Regulatory Authority) for such entities as non-governmental organisations.

According to the Act, however, churches and other religious organisations are not classified as PBOs.

Numerous attempts by the KRA and the Treasury to have religious organisations comply with tax laws have come a cropper. [Courtesy]

But even without the PBO Authority - which is yet to be formed - Waweru noted that there are numerous laws that the State can use to clamp down on rogue religious leaders.

“The poor enforcement of laws and regulations and the proliferation of corruption in our country is what enables the exploitation of the masses by the rogue entities profiting off people,” she said.

“Trustees of the churches who happen to be the direct beneficiaries of the largesse and philanthropy of miracle-seeking congregants, most often are the perpetrators of the commercialisation of the churches for their personal benefit.”

Such clergy, Waweru noted, should in essence be bound by Chapter Six of the Constitution on ethics and moral standing. She said other than being beneficiaries of what the congregants offer as they seek blessings, they “auction” them to politicians.

Waweru noted that churches should be subject to more scrutiny, including being compelled to make frequent disclosures of not only their members but also their financials.

“In my opinion, all churches should be registered and entered on a verifiable, searchable database. They should be required to file returns much like they do a return to their membership on quarterly and annual accounting for all the sources of funds and their utilisation,” she said.

“Reporting mechanisms for the churches should be in line with the generally accepted standards of accounting equivalent to for-profit-registered business entities. The exemption status should only be on identifiable tithes, sadaka (offering) or money raised at funds drives.”

Waweru added that there is a place for taxation of churches in the country, noting that it is easy to separate the taxable income from exempted incomes like tithe, offering and donations.

Nikhil Hira, a tax expert and director at Bowmans Kenya, said while churches and other religious organisations are exempt from paying income tax on certain categories of income, commercial activities attract tax.

“There are tax exemptions available for charitable organisations that are alleviating poverty as well as helping in religion and education… if you have commercial interests, then they will not be taxable if the gains go to charitable work,” said Mr Hira.

While querying KRA’s ability to enforce the law, he noted that the taxman is required to scrutinise the records of an organisation when they make an application for tax exemption. This happens every five years.

Robert Maina, senior tax manager at Ernst and Young, noted that there are numerous instances where religious organisations fail to separate their religious and charitable work from their commercial activities. This means they end up not paying their fair share of taxes.

He said at times, this is out of lack of awareness, but in many cases, it is the church’s leadership being crafty to beat the system.