Treasury targets cash-rich saccos to fund spending

Members of Kajiado North saccos at a past function. There are about 126 saccos in Kenya that control over Sh250 billion in deposits.

By James Anyanzwa

Kenya: Saccos are the latest victims of Treasury’s insatiable appetite for revenue. 

In the Finance Bill 2013, Treasury Cabinet Secretary Henry Rotich has proposed amendments to the Customs and Excise Duty Act that will see saccos suffer a 10 per cent levy on all transactions.

Sections of the Bill seek to substitute “financial service providers” in the Act with the more encompassing “financial institutions”.

Financial institutions

By way of clarification, the Financial Bill 2013, published Wednesday, notes that financial institutions will include entities such as insurance firms, commercial banks and now saccos.

Also in Treasury’s sights is the Kenya Post Office Savings Bank and micro-finance institutions.

The proposed amendment seeks to loop the cash-rich saccos into the tax net as the Government seeks more funds to finance its Sh1.64 trillion Budget.

Last year, Treasury introduced a 10 per cent excise duty on all transaction fees, charges and commissions for all money transfer services provided by banks.

Mobile money transfer services also suffered the same fate.

The full impact of this move will come to bear on saccos, which currently serves as a cheaper financing option for mostly small- and medium-size enterprises.

The excise levy is likely to lead to expensive credit in the coming months as saccos transfer the indirect tax to consumers.

Tax experts at Deloitte East Africa said the overall impact of the new tax would be to increase the cost of financial services offered by these institutions, with borrowers bearing the final burden.

“The intention is of course to expand the excise tax base, but since excise tax is an indirect tax, the cost will be borne by consumers,” said Lilian Kubebea, a tax director at Deloitte.

The revisions to the Excise Tax Act were initially introduced by former Finance minister Njeru Githae, with plans of raising Sh4.5 billion from transaction fees on all money transfer services provided by cellular phone service providers, banks, money transfer agencies and other financial service providers.

This came into effect in January 2013 and prompted some mobile phone operators to increase fees charged on their money transfer services.

Money transfer services

However, in March this year, the High Court stopped Kenya Revenue Authority from charging excise duty on money transfer services offered by commercial banks.

The court halted the new tax after the Kenya Bankers Association resisted the charge on grounds that it should be levied on goods, not services.

There are about 126 licensed saccos in the country, according to data from the Sacco Societies Regulatory Authority.

These saccos control over Sh250 billion in deposits, which are held by commercial banks.

The Treasury is exploring new sources of revenue to help finance its ambitious spending plan for the 2013/2014 fiscal year, and to plug a Sh350 billion deficit.

Among other revenue-generating avenues being considered are taxing rental earnings and enacting the Value Added Tax (VAT) Bill to tap Sh10 billion.