Cooperative leaders engage on current and emerging issues facing saccos

Kiambu

Sunday, August 13, 2023

KNA Wangari Ndirangu

The 1.5 per cent housing tax to be levied on all employees as proposed in the Finance Act 2023 will in the long run affect loan uptake and savings mobilisation, Savings and Credit Cooperative Societies (Saccos) have warned.

Sacco leaders fear that loan default rate is expected to increase in the subsector going forward as the same will be affected by decreasing monthly savings.

Speaking during a meeting organised by the Cooperative Alliance of Kenya (CAK) for cooperative leaders, Harambee Sacco Chief Executive Officer Dr George Ochiri said the 1.5 per cent housing levy deductions will affect their salaries and thus savings will equally be affected.

“Even though the Government insists on tax mobilisation to fund its programmes, eventually the strategy will have a huge impact in the Sacco sub sector as savers are likely to reduce their deposits in order to manage their livelihood obligations,” said Dr Ochiri. 

He added that,“If shareholders' financial bases are affected, Saccos are likely to be faced with an exodus of the members moving to other outlets.”

Dr Ochiri explained that the changing regulatory framework at the moment which comes into effect in July might see most members whose pay slips are already at the threshold of one third or less take home salary defaulting on their loans or equally opt to leave the sacco altogether just to survive .

An employer is permitted to make deductions from an employee's salary provided the employee takes home not less than a third of his salary (Section 19:3 of the Employment Act, 2007).24 Jun 2023.

Dr Ochiri said that once savings are affected this will interrupt borrowing capacity and thus deny Saccos fees earned out of the advances.

“This will interrupt the financial base of the Saccos and in the long run might affect other business segments of the credit unions. And equally force them to reduce employment and investments,” he added.

When loans go down, incomes will go down, and dividends will also be less while the interest on the taxman will also go down, he said noting that the only remedy for most saccos would be asking their members to channel their salaries through Front Office Service Activity (FOSA)

Cooperative Alliance of Kenya (CAK) chief executive officer Daniel Marube said with the addition of tax deductions on members’ salaries there will be eventual interruption of savings and in long terms affect loan uptake.

“We equally expect changes in membership as in some cases members will exit as the financial realities will be harsh to cope up with,” said Marube adding that at least there might be a reprieve for the government employees who will soon enjoy salary increment.

He acknowledged that despite the finance bill touching on various measures it is important for the Sacco leadership to sensitise its staff members on how they can be able to accommodate the changes as well as how the Saccos can assist their members to transit.

“Although it is our duty to pay the rightful taxes to the government in order to build our country. It is necessary for the leaders to have same knowledge and walk in the same direction that the government has taken and that is why we invited an expert to break down the bill for us,” he said.

Apart from learning about the finance act, Marube said the leaders will also be tutored on technology especially on shared services in order to minimise individual costs of saccos to minimise the cyber crime.

“The technology dynamics are rapid and expensive. We have come to realise that as individual saccos we are spending millions of members' money to acquire and upgrade systems. We have learnt that shared services is the way to go so we have resolved as Saccos and cooperatives that going forward we want to build Cooptech, a tertiary institution owned by a cooperative to provide first class technology to be shared by all to increase efficiency and reduce costs,” he said.

Mr Geoffrey Sigei from the Kenya Revenue Authority explained that the special law for the taxation of Co-operatives takes into account two main features namely, it is a body corporate having its own existence and that it generates much of its income from transactions with its own members.

This however excludes a society which has been exempted from all the provisions of the Co-operatives Societies Act under section 92 of that Act; or a society in respect of which the Commissioner is of the opinion is a body corporate carrying on business for its own profit.

“Co-operative Societies are taxable on their income like other persons but dividends and bonuses paid or distributed to members are allowed as a deduction in computing the taxable income," Sigei said.

He noted that Section 19 A of the Income Tax Act categorised into three parts namely designated primary Cooperatives, Designated Secondary Cooperatives and Credit and Saving Cooperative Societies.

The three day meeting whose theme was unpacking key roles of supervisory, audit committees and board of management for cooperative sustainability covered the framework for risk governance of Saccos, framework for taxation of saccos in the country and digital transformation to the cooperative movement.

Courtesy ; K. N. A