An overview of Corporate Tax for SACCOs in Kenya
Corporate tax on Saccos’ is governed by section 19A of the Income Tax Act. However, the below stated Saccos’ are exempted from tax.
- A society that is exempted from all the Co-operative Societies Act.
- A society in which the commissioner is of the opinion that, it is a body of corporate carrying on a business for its own profit, having regard to the manner in which its business is carried out, the number of members, or any other relevant factors.
SACCOs liable to pay tax
Membership is strictly for individual members only; The chargeable income for these SACCOs is the income for the year after deducting the aggregate bonuses and dividends declared and distributed to the members during the year.
Their chargeable income is income for the year after deducting aggregate bonuses and dividends declared and distributed to the members during the year.
The below illustration highlights the taxation of the above described Designated Cooperative Societies
| XYZ Sacco Limited | ||
| Profit & Loss Statement | ||
| For the Year Ended 31 Dec 20xx | ||
| Income | Kshs | |
| Direct Costs | -600000 | |
| Gross Profit | 400000 | |
| Expenses | -100000 | |
| Surplus for the Year | 300000 | |
| Bonuses | -50000 | |
| Dividends | -100000 | |
| Taxable Income | 150000 | |
| Tax @ 25% | 37500 | |
The total income is deemed to be the aggregate of;
- 50% of its gross interest income earned from non-members
- Gross income from any right granted for use of property (Rent)
- Any other income chargeable to tax under the Income Tax Act.
This is subjected to a corporate tax at the rate of 25%.
Interest income from members is exempt from tax and therefore the related expenses are not allowable
Other interest income is taxed as 25% of 50% of the income
Other incomes include rents, dividends, and capital gains, commissions from (money transfer services, insurance agency & housing schemes to members) etc. are taxed under specified sources of income.
The below illustration highlights the taxation of incomes of a designated primary SACCO.
| XYZ Sacco Ltd | |
| Profit & Loss | |
| For the Year Ended 31 Dec 2015 | |
| Kshs | |
| Exempt Income | |
| Interest Income from Members | 2,000,000 |
| Gross Interest Income (from non-members) 1,000,000 | |
| Taxable Income | |
| 50% of Gross Interest (non-members) | 500,000 |
| Gross Rent Income | 100,000 |
| Income from Investments | 200,000 |
| Realized foreign exchange gains | 100,000 |
| Chargeable Income | 900,000 |
| Tax @ 25% | 225,000 |
Given that the main income from members is not taxable, the administrative and such other expenses are not considered as allowable deductions against other incomes. This calls for apportionment of the total expenses as shown in the below illustration.
| Income | |
| Interest Income – BOSA (Interest income from members) | xx |
| Interest Income – FOSA (Interest income from non-members) | xx |
| Total Interest Income | XXX |
| Other Operating Income | yy |
| Ratio of apportionment | yy/xx |
The yy/xxx ratio is used to estimate the appropriate expenses that could be allowable while computing for the tax payable on the other operating income.
How to derive taxable income
To arrive at the taxable income, various adjustments area performed as illustrated in the below tax computation;
| Ksh | |
| Net profit per accounts | xx |
| Add: | |
| Disallowable expenses | xx |
| Less: | |
| Capital allowances –WTA, Software allowance, ID, IBA | (xx) |
| Other deductible expenses | (xx) |
| Adjusted taxable profit/ (loss) | xx |
| Tax Account | |
| 25% of the adjusted taxable profit | xxx |
| Instalment Taxes | (xx) |
| Withholding Tax Credit | (xx) |
| Tax Payable | xxx |
marlin mulako
October 26, 2021kindly can i get full notes on taxation of saccos
Beatrice Wanjiru Gichure
February 5, 2022Kindly send me notes on taxation of Saccos.
David Kinyua
April 5, 2022kindly can i get full notes on taxation of saccos
Wepondi Keneth
August 19, 2022Does Kenya have a special Tax Regime for Cooperative Societies?
Kindly share it with me.