Big win for sacco members in tax relief

Saccos are required to pay withholding
tax on dividends as well as other non-member
related activities that generate income.
Other form of taxes includes a 10 per cent
Excise Duty on the service fee they charge
their members.
“There are Saccos that have gone into
the mortgage business and therefore deserve
tax relief. We are regulated like all
other players in the financial sector, have
grown in size and must be given something
to leverage on, including access to the national
payments system,” said Alfred Mlolwa-
Chairman, Qwetu Sacco Society Limited,
formerly Taita Taveta Teachers Sacco
Limited.
According to the Finance Act, 2016,
interest portion of mortgage repayments are
tax free up to Sh25,000 up from the previous
limit of Sh12,500.
This means that mortgage holders are
allowed to deduct up toSh25,000 from their
taxable income with the remainder taxed as
per normal taxation brackets. But given that
Saccos are not commercial entities, they do
not benefit from these provisions.
“Those Co-operatives in the housing
sector had presented a petition to be provided
with some mortgage tax relief. Although
the tax law provides tax relief for those
who borrow to buy houses, Saccos are not
covered yet because they are basically nonprofit
making organizations and concentrate
only on service delivery to members. This
tax relief will spur growth in the real estate
sector as more Sacco members take up loans
to buy houses,” said John Mwaka, Acting
Chief Executive Officer (CEO) of Sacco
Societies Regulatory Authority (SASRA).
“The tax law only recognises mortgage
firm Housing Finance and other subsidiaries
of commercial banks. There are no provisions
for Sacco members, who are also employees
elsewhere and have their incomes
taxed. Those who take up loans from their
Societies to put up houses will now be able
to have relief on interest paid on their housing
loans, which will be deducted from their
salaries before taxation,” said Peter Waithaka,
CEO Kimisitu Sacco Society Limited.
A pledge that Saccos will be considered
for Mortgage Tax Relief in the next national
budget comes at a time when the industry is
saddled with numerous taxes and levies, including
Excise Duty on the service fee their
charge their members.
This 10 per cent Excise Duty is said to
be discouraging poor Sacco members from
engaging in a wide spectrum of Sacco’s
services including salary processing, loan
processing, dividend and deposit processing,
produce payment processing, cheque
clearance and use of bankers cheques. It
also eats into interest paid on savings under
Front Office Service Activity (FOSA).
Kenyan Saccos already pay a 30 per
cent Corporate Income Tax – one of the
highest income tax rates on credit co-operatives
in the world. Saccos and other credit
co-operatives are exempt from all corporate
income taxes in 70 countries around
the world.
Saccos are also feeling the pinch after
SASRA increased Sacco levy to 0.125 per
cent from 0.1 per cent.

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