Senior Partner in the Commercial Employment and IPT Practice
DLA Piper Africa, Kenya
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 January 14, 2013, the PBO Act remained dormant for more than a decade until May 9, 2024, when the Interior and National Administration Cabinet Secretary declared May 14, 2024, as its commencement date.
The immediate impact of 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Kindiki’s proverbial stroke of the pen was that the Non-Governmental Organisations Coordination Act of 1990 stood repealed and replaced by the PBO Act. It also replaced the NGO Board with 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For starters, while existing NGOs registered under the repealed law will continue to exist under the PBO Act, they are required to apply for fresh registration within 12 months from the commencement date.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 that 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 that delayed the operationalisation of the Act. The justification for this strange requirement has never been fully explained to stakeholders.
By way of analogy, when the Companies Act, 2015 became operational, existing companies incorporated under the repealed Companies Act were not required to be incorporated afresh.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, there are operational and logistical challenges that 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-transferable.
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 comprise 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 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 that 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, 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 Act provides that PBOs be registered within two months of submission of the application if it meets all the statutory requirements.
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 writer is Senior Partner in the Commercial Employment and IPT Practice at DLA Piper Africa, Kenya (IKM)Advocates.
