KUSCCO’s Fight for Fairer Sacco Taxes to Protect Members
The Kenya Union of Savings and Credit Cooperatives (KUSCCO) has proposed sweeping tax reforms aimed at protecting Sacco members from rising financial costs and strengthening the sustainability of Kenya’s cooperative sector.
In submissions to the National Treasury ahead of the 2026/2027 budget, KUSCCO has called for the removal of the 20 per cent excise duty charged on loan processing fees and member account maintenance charges, arguing that the tax unfairly burdens members and contradicts cooperative principles.
The proposals are anchored in the doctrine of mutuality, a long-established principle in cooperative law under which Saccos are owned by their members, who both contribute capital and benefit from services. Transactions between a Sacco and its members are therefore considered internal arrangements rather than commercial activities.
“Saccos function under the doctrine of mutuality, where members pool resources and transact within a cooperative they collectively own,” KUSCCO stated. The union added that taxing intra-member fees “fractures the identity between contributors and beneficiaries and re-characterises mutual dealings as a taxable trade.”
Higher Costs for Members
Industry experts say the excise duty has increased the cost of borrowing and routine services for cooperative members, as the tax is often passed directly to borrowers and account holders.
“Saccos exist to offer affordable credit to ordinary Kenyans—teachers, civil servants, farmers, and small traders,” said John Kiarie, a senior cooperative governance expert. “When internal member fees are taxed, that cost inevitably flows back to the member, weakening the Sacco advantage over commercial lenders.”
According to data from the Sacco Societies Regulatory Authority (SASRA), regulated Saccos serve more than 7.3 million members, representing over 13 per cent of Kenya’s population. Deposit-taking Saccos collectively control assets worth hundreds of billions of shillings, making the sector a key pillar of financial inclusion.
KUSCCO warns that continued taxation of internal cooperative fees risks pushing members towards costly digital lenders and informal borrowing, especially as households grapple with high inflation, rising taxes, and increased living costs.
Legal Contradictions on Membership
KUSCCO has also raised concerns over a legal contradiction between the Co-operative Societies Act and the Income Tax Act. While cooperative law allows Saccos to admit self-help groups, chamas, and corporate entities as members, the Income Tax Act defines a “primary cooperative society” as one made up only of individuals.
As a result, a Sacco that admits a group member risks losing its primary status, triggering higher taxation, including making member interest income taxable.
To address this, KUSCCO is calling for an expanded definition of “designated primary cooperative societies” to include groups and corporate persons. “This discrepancy creates punitive tax consequences and discourages innovative cooperative models,” the union said.
To bolster its case, KUSCCO pointed to international best practices. The Union noted that in Uganda, Saccos are largely exempt from income tax to encourage formal savings. In India and the Philippines, tax benefits are tied to the activity (like banking or farming) rather than the membership structure, ensuring that cooperatives can grow without being penalized for their size or diversity.
Income Tax Relief Proposals
Beyond Sacco-specific taxes, KUSCCO has proposed reforms to individual income tax bands, calling for wider bands and a higher tax-free threshold to ease pressure on workers’ disposable income.
The union notes that while nominal wages have increased, real earnings declined in 2024, with take-home pay further reduced by deductions such as the Affordable Housing Levy, Social Health Insurance Fund contributions, and higher NSSF rates.
“A progressive tax system strengthens household resilience and directly supports cooperative savings mobilisation,” KUSCCO stated.
Economists agree that increased disposable income boosts savings and investment at the grassroots level. “Saccos thrive when members have predictable incomes and room to save,” said Ms. Agatha Atieno, a financial inclusion expert.
Balancing Reform and Oversight
The proposals come amid heightened regulation of the Sacco sector following governance and financial mismanagement scandals. The government has introduced stricter oversight measures, including mandatory professional certification of Sacco chief executives and intensified supervision by SASRA.
While sector leaders support stronger governance, they caution against tax policies that undermine the cooperative model. “Governance reforms are necessary,” said a senior Sacco executive, “but taxation should not erode the mutual foundation that distinguishes Saccos from profit-driven lenders.”
As budget consultations continue, KUSCCO’s proposals are expected to shape discussions between the Treasury, lawmakers, and cooperative stakeholders, with significant implications for millions of Sacco members nationwide.
KUSCCO Tax Policy Reforms at Glance
The union has identified two major legislative bottlenecks hindering the growth of the cooperative sector. In a bid to safeguard the financial health of Saccos and their members, the union is calling on the government to address the following issues:
- Resolving the ‘Identity Crisis’ in SACCO Membership
The legal contradiction between the Co-operative Societies Act and the Income Tax Act (ITA). While cooperative laws allow Saccos to expand their reach by admitting groups—such as chamas and self-help groups—and corporate entities, the Income Tax Act remains restrictive. It narrowly defines a “primary cooperative society” as an entity consisting only of individual persons.
If a Sacco admits even a single self-help group to promote financial inclusion, it risks losing its status as a “primary” society. This trigger leads to a massive tax hike: member interest income—which is normally exempt—becomes taxable, and the Sacco is shifted into a significantly less favorable tax regime.
To rectify this, KUSCCO is calling for an expanded definition of “designated primary cooperative societies” to include groups and corporate persons. “This discrepancy creates punitive tax consequences for Saccos… resulting in inequitable treatment and discouraging innovative cooperative models,” the report states.
- Ending Excise Duty
KUSCCO is further demanding an amendment to the Excise Duty Act to exempt member-charged fees from the 20% excise duty currently levied on financial services.
The union’s argument is rooted in the “Doctrine of Mutuality”—the legal principle that a person cannot make a profit from themselves. Because Saccos are member-owned, the fees paid for loan processing or account maintenance are not transactions with an external profit-seeking entity; rather, they are internal contributions to a shared resource pool.
“Imposing excise duty on intra-member fees fractures the identity between contributors and beneficiaries,” KUSCCO argues. The union points out that this tax directly contradicts the government’s Bottom-Up Economic Transformation Agenda (BETA). By inflating the cost of loans for school fees, agricultural inputs, and small business capital, the duty places an unnecessary burden on the very citizens the government aims to empower.
“Uniform tax treatment is not only equitable but also economically strategic.”
