Imagine registering a vehicle, getting the number plates, but being told by the fuel station that your car doesn't exist. This bureaucratic absurdity is the current reality for thousands of Public Benefit Organisations (PBOs) in Kenya. According to governance expert Henry Otion Ochido, a glaring disconnect between the PBO Act and the Kenya Revenue Authority’s (KRA) latest tax rules is choking the sector that millions of Kenyans rely on for health, education, and emergency relief.

In a sharp critique published this week, Ochido exposes a legal quagmire where an entity can be fully recognized as a charity by the PBO Authority yet denied tax-exempt status by the taxman. The result? A paralyzed civil society where the spirit of Harambee is bogged down by red tape and conflicting definitions of what it means to help.

The Double Standard

At the heart of the crisis is a fundamental disagreement between two powerful state bodies. The PBO Act, designed to streamline the sector, offers a broad definition of charitable work, including advocacy and policy influence. However, the KRA, armed with the Income Tax (Charitable Organisations and Donations Exemption) Rules, 2024, operates on a much narrower, arguably outdated, set of criteria.

Ochido notes that while the PBO Authority might register an organization dedicated to climate change policy, KRA often rejects its application for tax exemption. The tax authority frequently flags such advocacy as "political," despite the PBO Act explicitly allowing non-partisan policy engagement. This leaves organizations in a perilous limbo: legal to operate, but too expensive to survive.

The 'Grant-Making' Trap

The situation is particularly dire for organizations that do not dig wells or build schools themselves but fund those who do. Ochido highlights Rule 23 of the 2024 Income Tax Rules as a "death sentence" for grant-makers. The rule explicitly states that an organization exclusively funding other charities shall not be granted tax exemption.

"Nowhere is the conflict starker," Ochido argues. "The PBO Act implicitly recognizes a diverse charitable ecosystem... However, the Income Tax 2024 Rules are antithetical to this model."

This rule ignores the modern reality of aid, where specialized foundations raise funds to support grassroots community-based organizations (CBOs) in places like Turkana or Kilifi. By taxing these intermediaries, the government effectively shrinks the pot of money available for the actual beneficiaries on the ground.

A Three-Step Fix

The impasse is not just a legal headache; it has real-world costs. When NGOs spend millions on compliance lawyers rather than programs, the Wanjiku at the dispensary loses out. Ochido proposes a three-pronged legislative surgery to save the sector:

• Legislative Harmony: Parliament must amend the Income Tax Act to accept registration under the PBO Act as definitive proof of charitable status, eliminating the need for a second, conflicting vetting by KRA.
• Repeal Rule 23: The Treasury and KRA must scrap the ban on tax exemptions for grant-making bodies and review Rule 13 to allow for innovation in how charity is delivered.
• Clear Guidelines: The PBO Authority should issue definitive guidelines interpreting the "28 purposes" of charity to align with common law principles, reducing ambiguity.

"Kenya's charitable sector is an important sector that facilitates citizens to express their compassion," Ochido concludes. For a nation built on the pillars of mutual responsibility, allowing regulatory incoherence to stifle this compassion is a price Kenya cannot afford to pay.