Cultural leaders and institutions, influential figures directing societal development, often receive contributions from subjects and well-wishers to support their administrative functions. The Institution of Traditional or Cultural Leaders Act, 2011, defines these leaders and their privileges, including tax exemptions.
Under Section 10 of the Act, cultural leaders receive various benefits exempt from income tax, such as official vehicles, educational allowances, first-class travel, and government contributions for various purposes. Gifts or donations to cultural leaders may also be exempt from income tax under Section 21(1)(j) of the Income Tax Act, provided they meet specific criteria.
For a property to qualify as a gift, it must be given voluntarily without expecting a reward and accepted by the recipient. The donor is responsible for accounting for taxes on the donation, particularly when given by business entities. For example, XYZ Hardware Ltd donating goods must account for applicable taxes, such as value-added tax, without the ability to deduct the expense for income tax purposes.
The URA spokesperson, Ibrahim Bbossa, clarified that cultural institutions involved in income-generating activities, like real-estate business, are required to fulfill their tax obligations. Even if a cultural leader is exempt, individuals donating to constitutionally recognized leaders must account for applicable taxes.
Bbossa emphasized that if a company dealing in VAT-able services or goods donates to a cultural leader, the donor entity must account for VAT tax obligations, as the donor becomes the final consumer. Consequently, the cultural leader or institution is exempt from paying those taxes.
