Articles, Know the Law

Understanding the Public Benefits Organizations (PBO) Act, 2013

In May 2024, Kenya ushered in a transformative phase for its civil society landscape with the operationalization of the Public Benefits Organizations (PBO) Act through Legal Notice No. 78 of 2024. This legislation marks a significant shift from the decades-old Non-Governmental Organizations (NGO) Coordination Act of 1990, redefining how non-profit entities are registered, governed, and empowered to contribute to societal good. For organizations previously registered under the NGO Act, the clock is ticking: they have until May 2025 to update their status under the PBO Act or lose their legal recognition. This article explores the key provisions of the PBO Act, contrasts it with its predecessor, and outlines the registration process, benefits, and challenges - offering a comprehensive guide for non-profits navigating this regulatory evolution.

The Evolution from NGO to PBO: A Progressive Shift

The NGO Coordination Act of 1990 served as Kenya’s foundational framework for non-governmental organizations for over three decades. While it provided a broad structure for registration and coordination, it fell short in addressing critical gaps, such as defining "public benefit" activities and ensuring robust accountability. The PBO Act, enacted in 2013 but operationalized in 2024, replaces this outdated model with a more precise and progressive regulatory framework.

Under the PBO Act, a Public Benefit Organization is defined under Section 5 as a voluntary, autonomous, non-partisan, and non-profit entity focused on activities that serve the public good, ranging from local community initiatives to international efforts. This shift from the generic "NGO" label to the more specific "PBO" designation reflects Kenya’s intent to foster civic participation and align non-profit work with national development goals.

Key Differences Between the NGO Act and the PBO Act

The transition from the NGO Act to the PBO Act introduces several critical distinctions:

1. Definition and Scope

  • NGO Act: Applied broadly to any non-profit, non-governmental entity, regardless of its focus. This flexibility often led to ambiguity, lumping together charitable, advocacy, and membership-based organizations under one umbrella.
  • PBO Act: Narrows the scope to organizations explicitly engaged in public benefit activities, such as health, education, environmental conservation, and human rights (as listed in the Sixth Schedule). This clarity ensures targeted regulation and support for entities genuinely serving societal welfare

2. Registration and Oversight

  • NGO Act: Registration with the NGO Coordination Board was a relatively simple formality, with minimal scrutiny of governance or financial health. This leniency sometimes allowed entities with weak accountability to operate.
  • PBO Act: Establishes the Public Benefit Organizations Regulatory Authority (PBOA) under Section 34, introducing a rigorous process that includes detailed vetting of organizational structure, financial transparency, and public benefit alignment. The Authority must decide on applications within 60 days (per Section 9), promoting efficiency while enhancing credibility.

3. Tax Exemptions and Financial Incentives

  • NGO Act: Lacked clear guidelines on tax relief, resulting in inconsistent approvals and delays that hampered financial sustainability.
  • PBO Act: Offers a structured framework for tax exemptions (e.g., on income, dividends, and stamp duty) and financial benefits, including VAT relief on imports, donation incentives, and eligibility for government grants. This predictability strengthens PBOs’ operational capacity.

4. Recognition of Public Benefit Activities

  • NGO Act: Did not define "public benefit," leading to disputes over eligibility, especially for advocacy or research-focused organizations.
  • PBO Act: Explicitly lists qualifying activities (e.g., economic development, environmental protection, and advocacy for public interest), reducing ambiguity and aligning PBOs with societal needs.

Benefits of Registering as a PBO

Registering under the PBO Act unlocks a range of statutory advantages designed to bolster non-profit operations:

  1. Tax Exemptions: PBOs enjoy relief on income from grants, donations, and other revenue streams, as well as VAT and customs duty exemptions on imports for public benefit activities.
  2. Government Support: Access to funding, grants, and contracts enhances PBOs’ ability to deliver services.
  3. Preferential Procurement: PBOs receive priority in public procurement processes related to public service.
  4. Policy Influence: Registered PBOs can participate in policymaking and access government training programs, amplifying their impact.
  5. Legal Status: Under Section 10, registration grants corporate status, enabling PBOs to own property, enter contracts, and litigate.

The Registration Process: A Step-by-Step Guide

Registering a PBO in Kenya is a structured yet meticulous process. Here’s how it works:

1. Name Reservation

Propose three unique names reflecting your mission via Form 2 with a Kshs 1,000 fee to the Registrar of Companies. The chosen name is reserved upon confirmation.

2. Gathering Required Documents

a. Physical address and contact details.

b. Details of three officials and board members (at least one-third must be Kenyan for foreign PBOs).

c. Charitable objectives aligned with the Sixth Schedule (e.g., health, education).

d. Form 1 designating a contact person.

e. Two colored passport photos of three officials and two board members (white background, labeled).

f. Certificates of Good Conduct (not older than six months) for Kenyan officials; notarized equivalents for foreigners.

g. A signed constitution, minutes authorizing registration, a one-year budget, and a cover letter with original signatures.

3. Submission and Vetting

Submit to the PBOA with applicable fees (e.g., Kshs 16,000 for national PBOs, Kshs 30,000 for international ones, per the Third Schedule of the NGO Regulations). Processing takes 60 days, though National Intelligence Services vetting may extend this. Interviews with directors may be required.

3. Approval

Upon approval, a Certificate of Registration is issued, granting legal status with perpetual succession.

4. Post-Registration Compliance

  • Open a Kenyan bank account.
  • File annual reports (audited financials and activity reports) within six months of the financial year-end (Sections 30-31).
  • Notify the PBOA of changes (e.g., leadership) within 60 days (Section 8(8)).

Implementation Challenges

Despite its progressive intent, the PBO Act faces hurdles:

  • Lack of Published Regulations: Ambiguity persists without detailed guidelines, complicating compliance.
  • Restrictive Board Rules: Mandating one-third Kenyan board members and limiting related members to three may hinder flexibility.
  • Ambiguity in Status Grants: Unclear processes for non-registered entities raise fairness concerns.
  • Government Collaboration Mandates: Required partnerships may compromise PBO autonomy.

The Role of PBOs in Kenya

PBOs, whether operational (delivering services like healthcare) or advocacy-focused (influencing policy), play vital roles as implementers, catalysts, and partners. They bridge grassroots needs with policymaking, mobilize resources, and drive innovation, such as using technology for education or researching climate solutions.

Conclusion:

The PBO Act represents a bold step toward strengthening Kenya’s non-profit sector, offering clarity, support, and accountability. For NGOs registered under the old Act, the May 2025 deadline looms large and prompt action is essential to retain legal status and access benefits. While challenges remain, the Act’s framework promises a more robust civil society, better equipped to address Kenya’s pressing social, economic, and environmental needs.