Saccos challenge Treasury on plan to increase deposit taxes

Savings and credit co-operative societies have gone to court to challenge a Government plan to increase the tax levied on cash deposits.

The Kenya Union of Savings and Credit Co-Operatives Limited (Kuscco) has asked the High Court to stop the increase of the sacco deposit levy from 0.1 per cent to 1.75 per cent.

The union argued that saccos would have to pass the burden to members if the new levy was enforced, making erstwhile affordable loans more expensive.

“An increase in the deposit levy will definitely trickle down to members since it will make it hard for saccos to lend on favourable terms due to the pressure to remit millions of shillings as tax for deposits,” said Kuscco lawyer Joshua Magee.

According to Kuscco, bonuses and dividends paid to sacco members on their savings and deposits at the end of each financial year would also be reduced to factor in the new tax rate unless the court intervenes.

The increased taxes on sacco deposits was proposed by the Sacco Societies Regulatory Authority (Sasra) in February and approved by the National Assembly in April.

The new taxes are scheduled to come into effect from January 2019.

No consultation

However, Kuscco has submitted that there was no consultation with stakeholders, including the 3,560 registered saccos in the country.

According to Kuscco, the increment is punitive and unfair to sacco members who make deposits expecting returns, and a double taxation to the majority who are employed and have their salaries taxed.

“Deposits made to saccos are from net salaries of employees who have already been taxed by the Government. The new levy exposes them to double taxation, which is a burden to thousands of small earners who depend on saccos for soft loans,” said Mr Magee.

According to the lawyer, Saccos also contribute to the exchequer through licence fees and taxes to both national and county governments, making the new tax plan unjustifiable.

He further argued that since saccos have continued to grow and increase in number since 2010, Sasra could still collect more money from the existing 0.1 per cent tax on deposits instead of seeking to punish already overburdened members with a new tax.

“Saccos are private entities registered and established for public good. The role of the Government should be merely to ensure there is a conducive environment for their operation as opposed to making the conditions tougher,” said Magee.

Reasonable costs

He stated that Sasra, being a government agency, should give service to the public at reasonable costs instead of coming up with unreasonable financial obligations.

The lawyer submitted that the Bill passed by Parliament allowing the increased taxes on sacco deposits was unconstitutional since it did not involve the Senate’s input.

In its petition, Kuscco is seeking a declaration that the legal notice of the new taxes on sacco deposits was a violation of its members’ rights and should be declared unconstitutional, null and void.