Savings and Credit Cooperative Societies (SACCOs) have long been recognized as vital pillars in Kenya’s financial ecosystem. This is true to-date. Under the Bottom-Up Economic Transformation Agenda (BETA), SACCOs are not merely financial intermediaries but grassroots economic engines that mobilize savings, deepen financial inclusion, and empower millions of citizens economically.
They are agencies of change. While their core mandate remains member-based savings mobilization and credit provision, SACCOs have progressively diversified into complementary income-generating activities aimed at strengthening member value and institutional sustainability. We should encourage innovations in our financial sector particularly with the regulator being there.
However, the current taxation framework imposes significant taxes on income derived from these so-called “non-core” activities. This approach, though perhaps well-intentioned, fails to appreciate the cooperative model and risks undermining the very objectives SACCOs are designed to achieve. There is a compelling case, both economically and socially, for exempting such income from taxation.
- SACCOs Are Not Profit-Maximizing Entities
Unlike commercial banks and private enterprises, SACCOs are member-owned and member-driven institutions. Their primary objective is not profit maximization but member welfare and economic empowerment. Any income generated—whether from core lending or supplementary investments—is ultimately redistributed to members in the form of dividends, rebates, or improved services.
Taxing income from non-core activities effectively amounts to taxing members’ collective savings and efforts. This contradicts the cooperative principle of mutual benefit and discourages innovation in enhancing member returns.
- Non-Core Activities Strengthen Financial Stability
Diversification into activities such as money market investments, fixed income securities, and other low-risk instruments is a prudent financial management strategy. These activities; Cushion SACCOs against credit risks, Provide liquidity buffers and Enhance resilience during economic downturns.
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By taxing such income heavily, the government inadvertently discourages sound financial practices. Weakening SACCO stability exposes members—many of whom are low- and middle-income earners—to greater financial risk. Such income tax revenue would be left as reserves in the Sacco or shared as dividends to members giving members higher disposable income to spend and save depending on their marginal propensity to consume or save.
- Promoting a Savings Culture is a National Priority.
Kenya continues to face a low savings-to-GDP ratio compared to emerging economies. SACCOs have been instrumental in nurturing a savings culture, especially among informal sector workers, rural populations, and underserved communities.
Non-core income streams enable SACCOs to offer competitive returns, making savings more attractive. Taxing these earnings reduces the overall returns to members, thereby weakening the incentive to save. In effect, taxation in this context works against national development goals of increasing domestic savings and investment.
- SACCOs Support the Bottom-Up Economic Transformation Agenda
Under BETA, the government emphasizes grassroots economic empowerment, financial inclusion, and support for micro and small enterprises. SACCOs are at the center of this vision.
Through expanded activities, SACCOs:
Finance small businesses and community projects,
Support youth and women groups
Enable collective investments.
Taxing their diversified income limits their capacity to scale these interventions. Instead of acting as catalysts for bottom-up growth, SACCOs risk becoming constrained and less impactful.
- Avoiding Double Taxation of Members
Members contribute funds that SACCOs invest in various instruments. When returns from these investments are taxed at the SACCO level and again taxed when distributed to members (where applicable), this creates a form of double taxation.
Such a system is inequitable and discourages participation in cooperative structures. Given that SACCO members are already taxpayers in their individual capacities, imposing additional layers of tax reduces their net economic benefit.
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- SACCOs Complement, Not Compete With, the Formal Financial Sector
SACCOs largely serve populations that are either underserved or excluded from mainstream banking. Their expanded activities are not designed to compete unfairly but to bridge gaps in financial access.
In fact, by investing in instruments such as money market funds and government securities, SACCOs support broader financial market stability and government financing. Taxing these activities heavily may reduce SACCO participation in such markets, ultimately affecting capital formation.
- Encouraging Cooperative Growth and Formalization Kenya’s Vision 2030 and broader economic strategies emphasize formalization of informal savings groups. SACCOs provide a structured pathway for this transition.
If non-core income is heavily taxed, smaller SACCOs and emerging cooperatives may lack the incentive to formalize or expand. This could push savings and investment activities back into informal, unregulated spaces, undermining financial sector oversight and growth.
Conclusion and Policy Recommendation
SACCOs are not just financial institutions; they are social-economic movements that embody collective progress, equity, and shared prosperity. Taxing income from their diversified activities fails to recognize this unique role and imposes an undue burden on ordinary Kenyans striving for economic advancement.
I would therefore recommend that:
Income from SACCO non-core activities be exempted from taxation, or a preferential tax regime be introduced recognizing their cooperative nature.
Such policy action would; Strengthen SACCO sustainability, enhance member returns, promote national savings, and accelerate bottom-up economic growth.
In aligning taxation policy with cooperative principles, the government will not only empower SACCOs but also reinforce a key pillar of Kenya’s economic transformation.
Let’s all be sent and core
By Edward Kinyungu
Intergenerational partner in Coops
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