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Finance Bill 2022 – Tax Deduction for Charitable Donations

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On 7th April 2022, the Cabinet Secretary for the National Treasury and Planning delivered the Budget Statement for the financial year 2022/2023 to the National Assembly. In the address to the National Assembly the Cabinet Secretary proposed a raft of tax policy measures for the fiscal year 2022/2023.

In this regard, and in recognition of the pivotal role that charitable organizations play in supporting vulnerable members of society, the Cabinet Secretary proposed that the Income Tax Act Cap 470 (‘the Income Tax Act’), be amended to allow all entities that make cash donations to charitable organizations to claim a deduction of such donations from their taxable income. Currently, under Section 15 (2) (w) of the Income Tax Act, only cash donations made to a charitable organization registered or exempt from registration under the Societies Act Cap 108 or the Non-governmental Organisations Co-ordination Act, 1990 (No. 19 of 1990, First Sch.), whose income is exempt from tax under paragraph 10 of the First Schedule to the Act, or cash donations to any project approved by the Cabinet Secretary responsible for matters relating to finance will be deductible from taxable income.

In line with the proposed amendments, the Finance Bill 2022 (‘the Bill’) was tabled before the National Assembly. Section 9 of the Bill proposes to delete Section 15 (2) (w) of the Income Tax Act and introduces a substitute clause to the effect that any donation to a charitable organization whose income is exempt from tax under Paragraph 10 of the First Schedule to the Income Tax Act, or to any project approved by the Cabinet Secretary responsible for matters relating to finance may be deducted from taxable income.

The impact of the proposed amendment would therefore be to extend the ambit of the allowable deduction in respect of cash donations to charitable organizations so that they apply to cash donations to all legal entities registered as charitable organizations, including trusts and companies limited by guarantee. This is indeed a welcome provision as it supports and recognises the role played by charitable organizations in promoting social welfare.

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