Stima Sacco calls for review into high taxation, biased regulations

By Godrey Were

Stima Sacco Society (Ltd) has called for a review into some of the punitive taxes asked by the taxman, saying overstretching the industry is going to have irreversible ramifications into the survival of Savings and Credit Cooperative Societies (Saccos).

In an exclusive interview with Financial Fortune Media, the Sacco’s Chief executive Chris Useki, believes it is now time to have serious engagements with various key stakeholders as an attempt to not only have appraisal on the taxation regime but also eliminate certain clauses into the proposed piece of legislation presently before the Parliament.

“Current laws and regulations are squeezing Saccos into behaving like profit-making organizations or business entities and that is my scare we are going to lose the social aspect of Saccos, but we hope to have a correction of certain aspects that we are concerned about,” said Useki.

The last few months have seen several proposals and changes into the operations of Saccos with  notorious one being the amendments to the Income Tax Act through the Finance Act 2018 – which doubled the withholding tax rate applicable to the dividends payable by a Sacco from five to 10 percent.

The Kenya Revenue Authority (KRA), which is the country’s tax agency had in January this year begun effecting the tax regime with Sacco members expected to receive reduced after-tax dividends following the enactment of the law.

While Saccos are generally not taxed on income which is derived from interest charged on members and as such most products tend to revolve around this, Useki believes that the taxman’s recent moves are straining Saccos and are now pushing Saccos to “behave” like financial institutions like banks – something he believes could hurt their operations in the long term.

“We are treated like financial institution by KRA, which is why you see certain services like excise tax, FOSA (front office services) are now being taxed like a corporate entity,” he says, calling for more lobbying to resolve some of these disparities.

“If this is not resolved in time, we are likely to see Saccos behave like banks,” asserts Useki, who is also worried about the new Cooperatives Bill sitting at the Parliament – and whose contents have been critised by Sacco movement.

The new proposal seeks to amend the Co-operative Societies Act, Cap 490 and the Sacco Societies Act, Cap 490B, to introduce a new, privileged class of Sacco members called “Social Impact Members” who were supposed to be outsiders –without savings in any Sacco, a move being objected by Saccos.

The Bill whose author is still not known had received hostility from its first reading in Parliament with Sacco lobbies – the Co-operative Alliance of Kenya and the Kenya Union of Savings and Credit Co-operatives (Kuscco) admitting to not have been consulted and whose creation pose threats to the survival of Sacco movement in the country.

“We do not what these social impact members are coming to cure, there is something fishy about this Bill. If it passes I fear there could be a breakdown of some Saccos and could further affect the industry.”