Why are some NGO’s exempted from Income Tax?

Why are some NGO’s exempted from Income Tax?

What NGO’s stands for and their roles?

An NGO (Non-governmental organization) is supposed to be organized and operated exclusively for scientific, research, educational character building, youth and sports-development, health, social welfare, cultural or charitable purposes, or a combination of any of these. One of the notable purposes of an NGO is to engage in social welfare, cultural and charitable activities.

Most NGO’s take the view they’re exempt from income tax by virtue of their status. Unfortunately, this is not. It’s always important for NGO’s to take appropriate legal steps to obtain a valid income tax exemptions. They should too adhere to the laid down procedures to ensure the validity of the exemption. This guard to the exposure to back taxes including penalties and interests.

Why NGO’s are accorded certain tax concessions?

Because of the nature of these activities, these organizations are also classified as non-stock and non-profit corporations. NGO’s that are organized for charitable, religious, scientific or cultural practices are exempt from income tax. Also, donations to such an organization are exempt from donors tax and deductible as an expense on the part of the donors. NGO’s and other organizations that have valid income tax exemptions are under obligation to file nil returns in cases where all their income is not taxable.

Withholding Tax

Governments rarely grant blanket tax exemptions hence the need to confirm what income is taxable. Failure to deduct withholding tax on qualifying taxable payments would expose the payer to back taxes and potential penalties. Being a non-stock and non-profit organization does not, for this reason alone, completely exempt an institution from tax. Activities for profit should not escape taxation. In other words, in evaluating the entitlement of these institutions to tax benefits and exemptions, the purposes, as stated in the corporation or registration documents, are not sufficient. The actual activities of the organization should be considered. For income tax, for instance, the exemption shouldn’t extend to activities conducted for profit.

Why civil society groups should get involved in tax policies?

Tax policy has a substantial impact on many of the core concerns of civil society groups, from ensuring the availability of funds for important social programs and to narrowing the gap between the rich and the poor. Civil society groups can help broaden the debate and bring a new focus on fairness and the needs of the disadvantaged to the discussion of tax policy. ( A Guide to tax work for NGO’s, Joel Friedman).


Joel Friedman, A Guide to tax work for NGO’s; states that decisions on revenue issues are some of the most important that a government makes. Tax rebates are sometimes perceived as technical, but at times they become heated and even volatile. Even in situations that are less extreme, it is vital that a civil society is in a position to offer its perspective on tax policies so that it can influence these policies and the impact they have on all citizens.

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