The Kenya Union of Savings and Credit Cooperatives (KUSCCO) has urged Parliament to consider targeted amendments to the Finance Bill 2025/2026 in a bid to enhance the sustainability and economic impact of the cooperative movement in Kenya. In a formal submission, KUSCCO outlined four key tax-related proposals aimed at addressing systemic challenges affecting SACCOs and their members.
- Uniform Withholding Tax Rate for SACCO Dividends and Interest
KUSCCO highlighted the disparity in withholding tax rates applied to dividends (5%) and interest (15%) paid to SACCO members — a discrepancy they argue is unfair and stifles economic growth for both members and SACCOs.
To resolve this, the union has proposed a uniform withholding tax rate of 5% for both dividends and interest. This would involve amending Paragraph 5(e) and h(iii) of the Third Schedule to the Income Tax Act.
“A uniform tax rate will simplify tax administration, reduce compliance errors, and lower administrative costs for SACCOs,” KUSCCO stated, emphasizing the sector’s unique structure as not-for-profit member-driven enterprises.
- Expansion of Tax Bands and Revision of Individual Income Tax Rates
In light of escalating living costs, KUSCCO is also calling for the adjustment of individual income tax bands and thresholds to protect low-income earners. Currently, individuals earning KES 24,000 monthly face a 10% income tax rate, while those earning just above KES 32,000 pay 25%. With the rising cost of food and essentials, these levels, the union argues, are no longer sustainable.
KUSCCO proposes that the 30% tax rate apply to salaries starting from KES 500,000, up from the current KES 32,333. Additionally, the monthly tax-exempt threshold should be increased from KES 40,000 to KES 50,000 (KES 600,000 annually). This adjustment, they say, would help offset the impact of the proposed removal of the KES 2,400 monthly personal relief, as outlined in the government’s Medium-Term Revenue Strategy (MTRS) for 2025–2027.
“Revising tax bands to reflect inflation is crucial. Our proposals ensure a more progressive tax structure that shields low-income earners from worsening economic conditions,” KUSCCO noted.
To complement these changes, KUSCCO recommended several strategies to improve tax compliance and awareness in the informal sector, including:
- Translating tax legislation into Swahili to enhance accessibility.
- Investing in efficient, user-friendly tax administration technology.
- Introducing simplified tax regimes for micro and small enterprises.
- Harmonization of Personal and Corporate Income Tax Rates
KUSCCO also flagged a disparity between sole proprietors and corporations. Under current provisions, a sole proprietor earning KES 800,000 annually is taxed at 35%, while a company earning the same amount pays 30%.
The union is proposing the harmonization of Personal Income Tax (PIT) with Corporate Income Tax (CIT) by aligning rates to reflect fairness and remove the unintended disadvantage faced by MSMEs — the majority of whom operate as sole proprietors.
This proposal, which would involve amending Paragraph 1 of Head B of the Third Schedule to the Income Tax Act, aligns with the government’s revenue strategy under the MTRS 2025–2027, and aims to level the playing field between individuals and corporate entities.
- Clarifying the Definition of Primary Designated Societies
Lastly, KUSCCO raised concern about the lack of clarity in the definition of primary cooperative societies — particularly those with a mixed membership of individuals and organized groups. The Cooperative Societies Act currently recognizes four categories of cooperatives but doesn’t adequately address hybrid structures, which are increasingly common in SACCOs.
KUSCCO proposes to expand the definition of “primary society” under Section 19A(7) of the Income Tax Act (CAP 470) by including the phrase “and groups of individual persons” after “individual persons.” A similar amendment is proposed for Section 19A to include group membership in the definition of designated primary societies.
“This change ensures inclusive taxation and protects SACCOs from being penalized due to membership structure,” KUSCCO explained.
Driving Cooperative Growth Through Fair Tax Policy
As cooperatives continue to play a pivotal role in financial inclusion and economic empowerment across Kenya, KUSCCO’s proposals come at a critical time. The union’s call for tax fairness, inclusivity, and simplification underscores the sector’s potential to drive national development if provided with the right policy environment.
KUSCCO concluded its submission by reaffirming its commitment to collaborating with the government to shape a more enabling fiscal framework that benefits not only cooperatives but also the millions of Kenyans they serve.
