Githae puts Kenyan churches on notice over income tax
The Treasury has put churches on notice that they are the next in line to pay taxes for commercial activities that give them an unfair advantage over other investors.
Finance minister Njeru Githae on Tuesday said that some churches and other charitable organisations were running businesses that have not been declared to the Kenya Revenue Authority for payment of tax.
“They must now distinguish what is charitable from commercial activities.
Income from investments in matatus, buildings, schools and hotels must be taxed,” Mr Githae said on the sidelines of the Development Partners Forum at the Kenyatta International Conference Centre in Nairobi.
Housing assistant minister Margaret Wanjiru, however, said the government should put in place a legal framework to define what was charitable and what constituted commercial enterprises before enforcing taxation on church investments.
Ms Wanjiru is the head of Jesus is Alive Ministries (JAIM), a church organisations with vast interests in the Public Service Transport sector.
“As far as I know, any church running a commercial enterprise has been paying taxes. Wherever you put in capital you pay taxes,” she said.
She said treasury should first put in place a more structured way to effect taxation even on landlords.
“I suggest the government engaging stakeholders before taxing. I do not get exemptions from VAT because I am a church minister,” she added.
Although charitable organisations such as churches are tax-exempt, they have dabbled in commercial activities, from running public service vehicles to hotels and conference centres.
Mr Githae said churches were exploiting loopholes in the system to avoid paying taxes. He said charitable organisations should declare such businesses to KRA, which he said was “cleaning up the tax system” to rope in every Kenyan or commercial enterprises that are supposed to remit tax.
Ms Wanjiru said that in order to strengthen the government position on effecting taxes on landlords or charitable organizations enterprises, there must be consultations.
“We have churches that are unstructured and this is why I insist that government includes stakeholders and build their capacity in order to move forward,” the assistant minister said.
Ms Wanjiru said tenants would shoulder the burden of increased tax on rental income slapped on landlords.
“We can not give generously with ten hands and take the same away with one big hand. Kenyans, including landlords are heavily taxed. The cost of food has skyrocketed, whether one owns a matatu, private vehicle, get a salary or income from rental buildings, they pay tax in one way or another,” she said.
Mr Githae warned landlords against increasing rents to offset their tax payments.
“It will be illegal for them to increase rent on the basis that they are now required to pay taxes. The more you increase, the more tax you will pay”.
He said Treasury would enlist the services of other organisations to map out commercial buildings through Global Radio Positioning Systems (GPRS) and Google maps.
The ministries of Lands and Local Government are digitising all land and tax registries to tighten tax payments. “Digitisation will give us (KRA) the opportunity to have a central place to get those who may evade taxation on rental premises,” the minister said.
Mr Githae’s announcement that KRA would collect taxes from rental income has triggered opposition from lobby groups such as the Consumer Federation of Kenya (Cofek), the Central Organisations of Trade Unions (Cotu) and the Institution of Surveyors.
They all said this would trigger an increase in rents as landlords passed on the burden to tenants.
Tax experts also criticised the minister’s move saying it would discourage new investment in real estate.
The tax, Mr Githae said, would be charged at prevailing Pay As you Earn rates on income from rent above Sh10,000 per month.
Although landlords would be allowed deductions such as financing and maintenance costs, experts have said the tax bands need to be broadened because of the long time it takes to recoup investments in real estate.
