Savings and Co-operatives Societies (SACCOs) leaders have urged the government to scrap dividend tax levied on their earnings to enable the sector compete effectively in availing financial aid to Kenyans.
Leaders in Kericho, Kisii and Nairobi said that double taxation coupled with the effects of climate change to have impacted negatively on the national savings, leading to the inability to expand their loan portfolios.
Chairman of the 142,000 – member Wakenya Pamoja SACCO in Kisii Mr Zedekiah Ngata termed the taxes on income from its Front Office Services Activities (FOSA) dividends from members ‘unfair.’
“There is taxation of the sector at every stage. Most of our income is earned from tea growing activity. The money is deposited into a commercial bank and is taxable. The farmers are also taxed from tea delivered to the Kenya Tea Development Agency (KTDA),” Ngata said.
Simon Gichuhi, the General Manager of Kericho-based Ndege Chai Sacco Society said the government should waive the dividend tax after receiving taxes from salaries of members of registered SACCOs.
The SACCO leaders said the three-tier tax regime was further worsened by the effects of climate change, which has resulted into drought and frost, leading to low production volumes.
Gichuhi said the effects of the drought in 2011 and frost resulted into a 50% drop in remittances from farmers.
“Earnings from the cheque-off system dropped from Ksh125 million to Ksh60 million. This justifies the urgent need for alternative funding to allow SACCOs to lend for up to 83 months from the current 48 months,” said Gichuhu.
With the SACCO sector gearing for the upcoming Summit for African SACCOs (SASCO), to be held in Nairobi from 14-15 August, to discuss the regulatory issues affecting the sector and limiting growth, the SACCO leaders are hoping that the meeting will be an ideal avenue to vent their pleas.
The summit aims to bring together SACCO leaders and international lenders to agree on alternative sources of funding, which is required to lower the cost of finance for about 13 million SACCO members.
Mr Gichuhi said that although the government reduced the divided tax from 15 percent to 5 percent, taxes levied on end-year earnings and cess charges from local authorities continued to pile the tax burden.
“We are squeezed, that is why we go for short-term lending,” Ngata said.
Last year, Wakenya Pamoja SACCO members required Ksh1 billion but the Society could only provided Ksh600million.
SASCO will discuss plans for an inter-lending facility for the sector and stock market listing modalities for SACCOs to create a uniform platform in the financial sector.
Mr. Gichohi said Ndege Chai, having remained a role-model SACCO, would be looking to enter the Nairobi Securities Exchange (NSE) once the regulations in the sector are harmonized.
Several SACCOs have welcomed proposals to be allowed to join the Credit Reference Bureau to boost their fight against loan defaulters.
James Ndone is a Communications and Journalism student at Moi University