Commercial tax coming for churches, NGOs

21 October 2019 | Local News

KENYA KAMBOWE

A law that would compel churches, NGOs and charitable organisations to pay taxes on income made from commercial activities will soon be drafted and tabled in parliament for debate.

During the March 2018 budget speech, Finance Minister Calle Schlettwein dropped the bombshell when he announced the ministry’s plan to amend Section 16 of the Income Tax Act which would see income received by religious, charitable, educational and other Section 21 companies being taxed.

Section 16 of the Income Tax Act provides that income of all ecclesiastical and charitable institutions of a public character are exempted from income tax and that this exemption applies irrespective of the source of such income.

When contacted for comment regarding the progress of the plan, finance ministry’s spokesperson Tonateni Shidhudhu told Namibian Sun that the ministry is continuing with this plan and it has conducted the necessary consultations with relevant stakeholders. The next step is the drafting and tabling of the bill in the August house.

“The bill will now be drafted and tabled in parliament for discussion and will be debated before the law is enacted,” Shidhudhu said.

“The Department of Inland Revenue held consultative meetings with relevant stakeholders to mainly clarify the proposed amendment in terms of inclusions and exclusions, discuss the requirements relating to compliance and most importantly to obtain crucial input that needs consideration.”

Shidhudhu explained that the institutions will continue to enjoy the tax haven as long as the income is not generated through commercial activities.

He added that the 32 percent corporate tax rate will apply to the institutions which are to be affected by the proposed amendment.

“The income received by the religious institutions will be exempted from income tax to the extent that such income was derived from donations, tithes, members’ contributions and similar sources,” Shidhudhu explained.

“The churches will be required to declare and pay tax on income received from commercial activities such as property rental, hospitality industry, transport industry and other types of income derived from activities of a commercial nature. It is anticipated that religious, educational and charitable institutions will be taxed at the current prevailing corporate tax rate of 32%.”

FAIRNESS

The amendment to Section 16 of the Income Tax Act to incorporate taxing the income of these means more revenue for the state.

However Shidhudhu explained that the proposed amendment by the ministry seeks more to provide fairness in the tax system and it should not be viewed as a government attempt to increase its streams of revenue.

“This is not merely to increase tax revenue but to enhance fairness in the tax system,” he said.

Prior to the consultations with the relevant stakeholders, the proposed amendment to Section 16 of the Income Tax received mixed feelings as church, NGOs and charity organisations bemoaned the announcement that was made without their consultation while some analyst thought it was a great move.