Without any forewarning, the current administration operationalised the 11 years old, Public Benefits Organisations Act which replaces the 30-year-old Non-Governmental Organisations Coordination Act, significantly altering the regulation of not-for-profit entities.
The PBO Act was assented to on 14 January 2013 by the late former President Mwai Kibaki, and its date of commencement was to be determined by a Gazette notice. Since then, and despite multiple attempts to operationalise it, there has been a reluctance by the Government to sign it into law. This all changed when the date of commencement was finally made public last week when the Cabinet Secretary for Interior and National Administration (the CS) published a Gazette notice stating that the PBO Act shall come into operation on 14 May 2024 (the Operational Date).
The PBO Act is intended to revamp the regulatory framework for civil societies in Kenya to create an enabling environment for their establishment and operations. The aim of the legislation is to bring certainty and greater transparency given the challenges that have existed under the NGO Act where the activities of Non-Governmental Organisations (NGOs) have been arbitrarily governed and where there was a pervasive risk of deregistration to “silence” those organisations that spoke out on sensitive topics in Kenya. There is also hope that the new legislation which recognises the important role that civil organisations play in society will help bridge the distrust between civil society and the Government of Kenya.
There are a number of significant compliance and reporting obligations for PBOs some of which are aimed at achieving fiscal transparency. Given the progressive changes in Kenya’s legal framework over the past 10 years and the continued furtherance of transparency, the timing of the PBO Act is fitting as Kenya works to remove itself from the grey list. The grey list is a list of jurisdictions under increased monitoring who are working with The Financial Action Task Force to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. Further information on the grey list is available here.
What’s New
The intention of the legislation is to streamline civic organisations that engage in public benefit activities under one piece of legislation. It also replaces the NGO Board with the Public Benefit Organisations Regulatory Authority (PBO Authority) which is designed to oversee the objectives of the new legislation.
To qualify as a public benefit organisation (PBO), an entity must be a voluntary membership or non-membership grouping of individuals or organisations which is autonomous, non-partisanship and non-profit making. This moves away from the repealed NGO Act whose focus was on the non-profit making. The PBO Act also lists organisations that do not qualify to be PBOs such as a trade union, a public body ,a political party, a religious organisation which is primarily devoted to religious teaching or worship, a society, a cooperative society, a Sacco society, a microfinance institution and a community based organisation whose objectives include the direct benefit of its members.
It is not mandatory for an organisation to be registered as a PBO; however in order for the PBO to access the benefits that accrue under the PBO Act, it has to be registered under the Act.
Impact of the PBO Act on NGOs
To enjoy the benefits under the PBO Act, a civil society that meets the criteria of a PBO must be registered under the PBO Act If an entity is registered under any other statute, it cannot be registered under the PBO Act. However, once an organisation is registered under the PBO Act, its registration under any other statute is superseded by its registration under the PBO Act. For existing NGOs previously registered under the repealed NGO Act, this means that they will need to register as PBOs under the PBO Act within a period of one year from the Operational Date. Failure by an NGO to register within this timeframe, after being given notice to do so, will result in the entity losing its PBO status after expiry of the notice period. Additionally, all NGOs previously exempted from registration under the repealed NGO Act are required to apply for registration under the PBO Act within 3 months of the Operational Date.
Benefits of the New Legislation
- Improvement in registration timelines and clarity on suspension or cancellation of registration
The registration of NGOs under the repealed NGO Act was lengthy and often took 6 months or more due to the vetting requirement by the National Intelligence Service. The PBO Act requires the Authority to consider an application for registration and undertake to register the applicant within 60 days if the applicant meets the requirements for registration. Where the Authority fails to issue its decision within 60 days, the PBO may apply to the Public Benefit Organisations Disputes Tribunal (the Tribunal) for an order compelling the Authority to issue it with a certificate of registration or communicate that the registration has been refused, giving reasons for the same.This strict registration requirement will hopefully provide relief from the lengthy process that NGOs have experienced under the repealed NGO Act. The PBO Act also clearly sets out the procedure for suspension or cancellation of the certificate of registration which is a welcome move given the lack of transparency that existed under the repealed NGO Act. - Enhanced Transparency
A PBO is required to provide certain information to the Authority about its affairs including financial related information and information about its governing body. A PBO may engage in lawful economic activities so long as the income is used solely to support the public benefit purposes for which the organisation is established. The income may include: donations of cash, securities, and in kind contributions, bequests, membership fees, gifts, grants, real or personal property and income generated from any lawful activities undertaken by the public benefit organisation with its property and resources. - Exemptions
A PBO receives indirect forms of government support in the form of exemptions from:i) income tax received from member subscriptions, donations or grants;
ii) income tax on income accrued from an income generating activity – if the income is to be used to support the public benefit that the PBO was established for;
iii) tax on interest and dividends on investments and gains earned on assets or the sale of assets;
iv) stamp duty; and
v) court fees. - Governance Agreement
In contrast to the repealed NGO Act, the PBO Act adopts a multi-tiered approach to resolving disputes. It establishes the Authority, which serves as a dispute resolution platform and possesses the authority to review its decisions within specified timelines. Appeals against the Authority’s decisions are heard by the Tribunal. - Preferential Tax Treatment
A PBO will enjoy preferential treatment with respect to value added tax (VAT) and customs duty on imported goods and services utilised to further its public benefit purposes. Additionally, there are incentives for donations from both legal entities and individuals, employment tax preferences and special tax incentives for donations to form endowments and prudent investment policies. - Faster Process for Obtaining Work Permits
Under the repealed NGO Act, all requests for entry work permits for prospective employees of registered NGOs were required to be submitted to the NGO Board, which in turn made recommendations to the Principal Immigration Officer for permit issuance. However, the PBO Act eliminates this intermediary step, allowing PBOs to apply to the Principal Immigration Officer directly.
Although the benefits in the PBO Act are generally quite broad, in order for some of them to be effective and accessible, additional legislation would have to be enacted. For instance, exemptions from and preferential treatment in relation to taxes have to be legislated and incorporated into tax related legislation. Similarly preferential treatment in public procurement procedures would have to be specifically included in legislation dealing with public procurement. The PBO Act therefore expresses intention to provide certain benefits to PBOs rather than a firm commitment.
Challenges of the PBO Act
- Rigorous Reporting and Compliance Obligations
A PBO is required to provide information about its affairs to the Authority including its audited accounts, certified financial statements (which require an opinion signed by an independent auditor regarding the accuracy of the organisation’s financial status), a report delineating its activities for each financial year and the names, physical, business and residential address of its governing body members. In addition, PBOs are required to establish internal accounting and administrative protocols to guarantee the transparent and appropriate utilisation of their resources. - Public Access to Information
The Authority is required to maintain a register of all registered PBOs setting out the following details:i) the area of activities of the PBO;
ii) the registered officials in charge of the PBO;
iii) any information presented to the Authority by the PBO;
iv) a detailed inventory of the assets of the PBO;
v) any other information that the Authority may deem necessary to include or as may be provided by the regulations to be published by the CS.The register is open to the public – this exposes the PBO to additional scrutiny by members of the public who will have the right to access all information filed with the Authority. - Kenyan Directorship Requirements
If a PBO intends to directly implement any activities or programmes in Kenya or to operate from Kenya to implement any activities or programmes in another country, then the organisation must register as an international organisation. An international organisation is required to have at least one-third of its directors being Kenyan citizens who are resident in Kenya and maintain an office in Kenya. This makes the governance composition more difficult for international civil societies looking to undertake work in Kenya.
Conclusion and Way Forward for Non-Profit Organisations
The aim of the PBO Act is to provide an enabling environment for civil society actors whilst enhancing self-regulation and discouraging the misuse of public resources. Only time will tell the true impact of the new legislation on civil societies in Kenya and existing NGOs. The CS is required to formulate draft regulations to govern the activities of PBOs. Stakeholders will have a minimum of one month from the notice date to provide their feedback on the draft. It will be important to understand the additional compliance requirements for PBOs that the CS will set out in the regulations and the impact they will have.
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Read the original publication at ALN
