Kenya: Saccos decry high taxes, vow to defeat controversial Bill

Savings and Credit Cooperative Societies (Saccos) are calling for a review into some of the punitive taxes being proposed by the taxman, saying overstretching the industry is going to have irreversible ramifications into the survival of Saccos.

In an exclusive interview with Financial Fortune, Stima Sacco’s Chief executive Chris Useki, has now called for speedy 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  infamous 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 which will now see Sacco members receive reduced after-tax dividends following its enactment.

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 banks – something he believes will be catastrophic 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.

While more and more banks are today pledging to lend cheaply to borrowers with good credit history, majority of Kenyans have continuously leaned towards Saccos due to their competitive fees and lower interest rates on loans even though the amount to be borrowed is limited to a members’ savings.

It is now feared that failure to amend the aforementioned, Saccos could be exposed with a possibility to seeing some merging to stay afloat, even though Saccos do not entirely exist to make profits as is the case with the banking institutions.

Also thought to be a hindrance to the sector’s growth is the proposed Cooperatives Bill currently in Parliament awaiting second and third readings after the first reading got an expected backlash from several Saccos and key stakeholders – and whose contents have been critised by Sacco union, Kenya Union of Savings & Credit Co-operatives (KUSCCO).

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.

“You should be cautious, the thief comes into the night to steal, he could do so through the Parliament like he’s trying to. This could be suspicious money being channeled into our Saccos to cripple our growth, we should avoid it at all cost,” said Mentor Sacco Chairman Anthony Kamau during the Sacco’s Annual General Meeting (AGM) three weeks ago.

“This Bill will be defeated it cannot be passed by MPs,” said Kamau.

The Bill whose author is still not known continue to receive hostility from all quarters with Kuscco, Sacco members as well as the Industrialization ministry under the cooperatives all querying its existence.

“We do not know what these social impact members are coming to cure, there is something fishy about this Bill. If it passes my fear is there could be a breakdown of some Saccos and which will affect the industry,” says Stima Saccos’ Useki.