Why SACCOs are seeking tax reform reveals much about the challenges facing Kenya’s cooperative sector today. Savings and credit co-operative societies (SACCOs) have long supported communities by offering affordable loans, mobilizing savings, and empowering members. Yet many SACCOs now face financial pressure from tax rules that threaten their liquidity and limit their ability to serve members effectively.
The Kenya Union of Savings and Credit Co-operatives (KUSCCO), the umbrella body for SACCOs, has submitted proposals to the Treasury seeking changes to the Income Tax Act (ITA). The reforms would protect SACCOs that admit corporate or group members such as investment clubs, self-help groups, and corporate entities from heavier taxation that reduces their lending capacity.
At the heart of the issue is Section 19A of the ITA, which defines a “designated primary co-operative society” as one whose membership consists entirely of individual persons. SACCOs admitting even a small number of non-individual members are reclassified, losing preferential tax treatment. KUSCCO calls this punitive, noting that it erodes margins, discourages innovation, and limits cooperative growth.
The Importance of Group Membership
Group membership is essential for SACCO liquidity and sustainability. Deposits pooled from chamas, self-help groups, and corporates provide capital for loans to households, small businesses, and school fee payments. Over 90 percent of SACCO lending relies on member deposits, meaning any loss of funds affects their ability to serve communities.
Prominent leaders and SACCO advocates, including Oparanya Wycliffe, have publicly supported these proposals, emphasizing the need to protect cooperative institutions and their members. Their backing highlights the growing consensus on the importance of SACCOs for community development and financial inclusion.
Yet many savers remain dormant, exacerbating liquidity pressures. SASRA data shows dormant accounts in deposit-taking SACCOs rose by over 15 percent in 2024, while non withdrawable SACCOs saw dormancy increase by more than 40 percent. Active membership grew only modestly, highlighting the challenge of mobilizing savings efficiently.
By penalizing SACCOs for including groups or corporate members, the current tax framework limits innovation and restricts the ability to mobilize larger savings pools. KUSCCO’s proposed amendment seeks to harmonize tax treatment across all SACCOs, ensuring fairness while encouraging growth.
Legal and Policy Gaps
KUSCCO highlights a legal inconsistency between the Income Tax Act and the Co-operative Societies Act. Section 19A focuses on membership structure rather than the economic activity of the SACCO. As a result, SACCOs that serve groups or corporates face audits and disputes even when they comply with all other regulations.
Amending Section 19A would broaden the definition of designated primary co-operative societies to include both individual and organized group members. This change would remove arbitrary discrimination, ensure fair taxation, and allow SACCOs to operate efficiently while serving a wider range of members.
KUSCCO also points to international practices. In India, the Philippines, and Uganda, cooperative tax regimes focus on economic activity rather than membership composition. In Uganda, SACCOs were granted full exemption from income tax between 2017 and 2027, encouraging citizens to save in regulated institutions rather than informal channels. Such policies support financial inclusion while allowing cooperatives to thrive.
Excise Duty and Internal Fees
Beyond income tax, SACCOs face excise duty on fees charged to members, including loan processing fees, administrative charges, and commissions. KUSCCO argues that these fees are internal contributions under the “doctrine of mutuality,” since members are both owners and users of the SACCO. Taxing these fees misclassifies them as commercial transactions, straining SACCO finances unnecessarily. Exempting them would allow SACCOs to focus on lending and member services.
Real People, Real Impact
The effects of taxation are felt directly by ordinary Kenyans. Parents borrowing for school fees, small business owners financing stock, and families managing emergencies rely on SACCOs. When taxes rise and liquidity falls, these people face higher costs or reduced access to credit. SACCOs cannot fully support their members if operating costs increase or innovation is stifled.
Higher taxes also slow the development of services like digital platforms, membership expansion, and community focused programs. This affects vulnerable groups who depend on cooperative savings to access financial services.
Fair Taxation Supports Growth
Harmonizing tax treatment across SACCOs ensures that institutions serving both individuals and groups can operate fairly and sustainably. It encourages financial inclusion, supports community lending, and strengthens trust in cooperative institutions. Regulatory clarity allows SACCOs to focus on growth rather than compliance disputes.
Excise duty relief on internal member fees would further reduce operating costs, enabling SACCOs to provide better services at lower lending rates. By recognizing that cooperative dealings are different from commercial trade, law and policy can align with SACCOs’ mission to serve communities.
The Road Ahead
The Treasury and Parliament now consider KUSCCO’s proposals. Approval could mark a significant shift in SACCO taxation, allowing them to serve diverse membership bases while retaining key exemptions. It would also recognize the cooperative model’s unique structure, where members are both owners and users.
For SACCO leaders, the push is not about avoiding taxes but ensuring fairness and long-term sustainability. By reforming Section 19A and excise duty provisions, Kenya can strengthen cooperative institutions, enhance liquidity, and expand financial inclusion.
SACCOs remain critical to Kenya’s financial ecosystem. They mobilize savings, provide affordable credit, and support communities often underserved by traditional banks. Yet, current tax and regulatory frameworks threaten their sustainability.
Harmonized taxation, relief from internal member fees, and recognition of group membership can protect SACCOs, improve liquidity, and enable them to serve more Kenyans effectively. Ultimately, fair tax policy should empower SACCOs to continue their mission: helping communities save, borrow, and thrive.
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