Corporate Tax for SACCOs in Kenya | Ronalds LLP
An overview of Corporate Tax for SACCOs in Kenya

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 Profit400000
Expenses-100000
Surplus for the Year300000
Bonuses-50000
Dividends-100000
Taxable Income150000
Tax @ 25%37500

The total income is deemed to be the aggregate of;

  1. 50% of its gross interest income earned from non-members
  2. Gross income from any right granted for use of property (Rent)
  3. 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 Members2,000,000
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 IncomeXXX
Other Operating Incomeyy
Ratio of apportionmentyy/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 accountsxx
Add: 
Disallowable expensesxx
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 profitxxx
Instalment Taxes(xx)
Withholding Tax Credit(xx)
Tax Payablexxx
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