Court bars KRA from imposing taxes on tithes, church offerings

Churches can now breathe a sigh of relief after the High Court stopped the Kenya Revenue Authority from imposing taxes on tithes, offering donations made to them by their believers.

In his ruling Justice David Majanja upheld a ruling made by the Tax Appeals Tribunal that barred KRA from imposing taxes on houses of worship. The tribunal made the ruling in a case where the taxman demanded Ksh.5.5 million in tax from Thika Road Baptist Church.

The taxman wanted the church to pay the said amount arguing that it failed to produce documents that showed that it was exempted from paying taxes. Though houses of worship are exempted from paying taxes, KRA insisted that they must produce a tax exemption certificate, which is subjected to certain conditions.

Justice Majanja threw out KRA's argument noting that the donations, tithes and offerings made to the church cannot be considered an income and hence cannot be subjected to the income tax bracket.

"I hold that since tithes, freewill donations and offerings are not income chargeable with income tax, the church didn't have to seek the tax exemption," Majanja ruled.

The judge also pointed out that the taxman failed to demonstrate how tithes, offerings and donations made to the churches are gains and profits, employment or rights granted for use of property or any other form of recognized income by the Income Tax Act (ITA).

He said that tithes and offerings to the church and other religious organizations are not within the scope of income tax, which is chargeable within the ITA.

"I agree that the type of income (to the church) does not fall within section 3(2) of the ITA," he said.

The ruling comes years after the National Treasury put the houses of worship on notice that they would be subjected to paying taxes if they engage in commercial activities that give them an unfair advantage over other investors. This came after it was noted that some churches were running profitable businesses which freed them from only relying on tithes and donations to run their businesses. 

In the proposal, the Treasury wanted the church to distinguish what is charitable from profitable businesses such as schools, hotels, and matatus.