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How the Public Benefit Organisations Act will impact the NGO sector

By William Maema

The Public Benefit Organisations Act, popularly known as the PBO Act, will probably go down in history as the statute that in recent memory has stayed the longest in the freezer after receiving presidential assent.

Enacted in December 2012 and signed into law by the late President Kibaki on 14 January 2013, the PBO Act remained dormant for more than a decade until 9 May 2024 when the Cabinet Secretary for Interior and National Administration, through Legal Notice No. 78 of 2024, declared 14 May 2024 as the commencement date of the Act.

The immediate impact of Prof.Kithure Kindiki’s proverbial stroke of the pen was that the Non-Governmental Organisations Coordination Act of 1990 stood repealed and replaced by the PBO Act with effect from the commencement date. It also replaced the NGO Board by the PBO Authority as the regulator of the not-for-profit sector in Kenya.

If implemented as intended by Parliament, the Act heralds a fundamental shift in the legal, regulatory and institutional framework governing the regulation of public benefit organisations (formerly known as NGOs) in Kenya.

For starters, while existing NGOs registered under the repealed law will continue to exist under the PBO Act, they are required to apply for fresh registration within 12 months from the commencement date.  NGOs which fail to re-register will cease to have PBO or any similar or equivalent status. This implies that they will cease to exist since the law under which they were registered no longer exists.

This was one of the most controversial provisions which delayed the operationalisation of the Act. The justification for this strange requirement has never been fully explained to stakeholders despite the cost and inconvenience involved.

By way of analogy, when the Companies Act, 2015, was enacted and became operational, existing companies incorporated under the repealed Companies Act were not required to be incorporated afresh.

Apart from the cost implications of re-registration which are substantial, there are operational and logistical challenges which bring into question the value of this requirement. For instance, the transfer of operations, assets, liabilities and contracts from the currently registered entity to the new PBO will be a logistical nightmare considering that some authorisations such as work permits are non-transferrable. The transition of employees may also lead to redundancy claims since Kenya does not have a law for the automatic transfer of employees.

The Act contains elaborate requirements applicable to international NGOs (INGOs) which operate or are seeking to set up in Kenya.   INGOs are required to appoint a local representative who is a Kenyan citizen residing in Kenya upon whom official notices, summonses and other processes will be served. This concept is borrowed from the Companies Act which requires foreign companies seeking to register branches in Kenya to have such a representative. It is, however, a redundant requirement for INGOs since the same law requires them to ensure that at least a third of their Board members comprises  Kenyan citizens.

The PBO Act abolishes the exemption from registration granted to certain INGOs under the repealed law and requires them   to apply for registration within three (3) months from the commencement date. It is, however, not clear if this requirement refers to INGOs or bilateral organisations (established by states) which were specifically exempted from registration under the repealed law.

Unlike the repealed statute which mandatorily required INGOs to be registered under the Act, the PBO Act adopts the carrot approach. It provides a litany of juicy incentives which will only be enjoyed by registered PBOs. The benefits include exemptions from income tax, stamp duty and court fees; preferential treatment on VAT and custom duties; incentives for donations; employment tax preferences; special tax incentives for donations to form endowments; direct government financing for PBOs that partner with the government; preferential treatment in public procurement procedures; access to training courses offered by government institutions, among others. To the disappointment of many stakeholders, however, there are no incentives concerning work permits. It also remains to be seen if these benefits will be readily available to all PBOs.

The Act has also introduced a dispute resolution mechanism by creating the Public Benefit Organizations Disputes Tribunal. The Tribunal will hear and determine all complaints arising from breach of the Act as well appeals on matters such as the refusal of registration and suspension/cancellation of a registration certificate by the PBO Authority.

The Act provides for a more transparent and predictable registration process which requires PBOs to be registered within two months of submission of the application if it meets all the statutory requirements. If implemented, this is welcome relief to applicants who currently wait for 6-8 months for registration without any accountability or enforcement mechanism to force the hand of the NGO Board. Where the PBO Authority has failed to issue the certificate within the prescribed period, the applicant may apply to the Tribunal for an order requiring the Authority to either issue the certificate or give reasons for the refusal.

As they say, the proof of the pudding is in the eating. Whether the PBO Act will change the regulatory landscape for better or for worse remains to be seen.

The article was featured in the Business Daily on 22 May 2024 and can be accessed here.