During Thursday plenary that was debating the Income Tax (Amendment) Bill, 2018 that was tabled by finance minister in April, MPs passed the Bill, but rejected some of tax proposal that among others included taxing SACCOs.
PARLIAMENT. Members of Parliament have overwhelmingly rejected government’s proposal to impose 30% levy on Savings and Credit Cooperative Societies (SACCOs).
During Thursday plenary that was debating the Income Tax (Amendment) Bill, 2018 that was tabled by finance minister in April, MPs passed the Bill, but rejected some of the tax proposals that among others included taxing SACCOs.
The Bill proposed to repeal section 21 that was introduced in 2017 to exempt SACCOs from paying income tax up to June 30, 2027.
During the debate, MPs argued that SACCOs have not yet matured to be taxed and that taxes will gradually disintegrate SACCOS and discourage people.
“SACCOS are used as shock absorbers and help fill the gaps left behind by banks. So, we need to give SACCOs time to mature so that at a certain threshold, then government could consider taxing them,” Kamusiime Pentagon (Butemba County) said.
Soroti Municipality MP Hebert Ariko argued that taxing SACCOs will defeat the very objective of SACCOs and will also reduce money in circulation.
In its report, Parliament’s Finance Committee headed by Chairperson Henry Musasizi recommended that government should first conduct a study on the effect of exemption of taxes on SACCOs before reintroducing the tax.
Before passing the Bill, MPs also rejected government’s proposal to tax a company that has carried forward losses for a consecutive period of seven years.
MPs opposed State minister for Planning, David Bahati’s proposal that tax should be charged on gross turnover for companies declaring losses for 10 consecutive years instead of 5 years as it is the case in the Bill.
“The moment we tax losses then it ceases to be income tax, but rather loss tax. We need to strengthen URA through their investigation units to investigate bank transactions in a bid to establish if a company is making losses or not,” Nandala Mafabi (Budadiri West) said.
“It is unfair to say a tax payer who has consistently incurred losses for 7 consecutive years should pay 0.5% tax. A tax is only paid when profit is made. We can’t use the inefficiency of URA as an excuse to tax companies that make losses. This under declaration of losses or profits by companies is as a result of the poor performance of URA, so the tax body should have the capacity to do better in audit,” James Kakooza (Kabula County) said.
In a defence, State minister for Planning, David Bahati said that the proposal is not to tax loss making companies but rather turnover.
“The tax we are proposing is on turnover not losses, the point we are trying to point out is that if you are not making profits for 5years then what are you still doing in business?” Bahati said.
The Bill as passed will now empower the Minister to make regulations for tax accounting for Islamic financial transactions and to provide for taxation of income arising from change of ownership of a business.
The new law will also exempt from tax the income of a developer of an industrial park or free zone whose investment capital is at least $200m for a period of 10 years from the date of commencement of construction and also exempt from tax the income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least $30m in the case of a foreigner or $10m in the case of a Ugandan citizen for five years from the date of commencement of business.
by UCSCU Training Manager, Mr. Kyepa Andrew
SACCOs belong to a family of organizations called cooperatives; in most of the developed countries they take on the name of credit unions though the principles, values and business model remains the same across all divides.
According to the World Council of Credit Unions (WOCCU) 70% of the countries exempt SACCOs from taxes and these are the reasons;
1. Not for profit but for service organizations
SACCOs are formed not to build profits like banks and money lenders but to provide a needed service among members. For this reason, SACCOs terms and conditions for financial services make them affordable to the otherwise would be financially excluded. They take on high lending risk because most of the loans are unsecured.
2. The Members are the only source of funding
unlike other corporate entities like banks which can mobilize capital from the financial markets, SACCOs largely depend on contributions from members savings and at times due to liquidity challenges are forced to borrow to meet the demand for loans at very high interest rates. In this regard taxing the surplus of SACCOs is like taking away food stored for the next day from a family struggling to achieve food security. Our food security as SACCOs is the retained earnings; which is the only option to build capital to continue providing affordable services to members.
3. The members are the only customers.
While banks and other corporate entities have an open market; SACCOs are the only institutions that mobilize funds from members and give back these funds in form of loans to the same people that contributed to the fund; other cooperatives like Bugisu cooperative union has the opportunity of trading outside its membership but that can never happen in SACCOs. This nature of work can only survive if interest rates are kept low; funds are readily available when members apply for loans and reasonable reward is given to keep motivating savers.
The implication of a heavy tax burden on these institutions is that it collapses the business methodology and kills the motivation to belong to SACCOs. It takes the SACCOs to swim in the deep waters with banks but denies them the life jackets that banks put on; ultimately they will not survive but will drown.
It’s unfortunate that most of the legislators are being misinformed about SACCOs and leading them into a decision intended to wipe SACCOs away from the face of Uganda. Some of the proponents of this move argue that SACCOs will give a window for the rich to do banking business while untaxed.
This can never be true because there are regulations to ensure that such does not happen and if it ever happened then it requires refinement of the regulations but not punishing people who are trying to help themselves.
There have also been arguments that some SACCOs are too big not to pay taxes. The problem here is when people look at assets alone without taking note of the numbers contributing to those assets; while a bank may belong to two -50 owners according to the company law; a SACCO can belong to 100000 members and even when its total assets add up to 100 billion; it’s a "saving up" of averagely 1M over so many years of retaining their savings in the SACCO by the ten thousand members. This savings up of ordinary people will crumble down with these proposals of increasing their tax burden.
In picture: One of the SACCO board members being trained by UCSCU trainers.
Tax burden increases because they are already paying taxes from their incomes as individuals, stamp duty on the loans, local service tax to be allowed to cooperate and help themselves, their small dividends from their shares are taxed and interest earned on savings is taxed.
Its only corporate tax that keeps our identity as not for profit and member based organizations. If this is taken away; it will start a slow and painful death of SACCOs, painful because most of us have had the opportunity to receive education, educate our children and relatives, attend to very expensive medical care in this country, put up a place to call a family home and start alternative income generating projects which are paying taxes and employing Ugandans as well because we have our own financial institutions which can trust us, but also gives financial services on terms we can afford.
High taxes on SACCOs is not different from a family dying of hunger where members contribute towards preparing a meal, they buy posho and beans which are already taxed, use charcoal and water which is already taxed; cook, eat and leave some food for tomorrow; then the tax man comes and takes away their meal kept for tomorrow. This tax man would have condemned this family to abject hunger and eventual death.
PLEASE SAVE OUR SACCOS AND SAY NO TO CORPORATE TAX.
Kampala. President Museveni has donated Shs500m to Wekembe, a savings and credit cooperative organisation (Sacco), founded by Kampala Archbishop Cyprian Kizito Lwanga.
“Together with the Archbishop Lwanga, we are going to sit and see how to help the members but today after witnessing the good work, in July, I am going to put Shs500m in your Sacco,” Mr Museveni said, adding that the money will be available in the Financial Year 2018/2019.
The President, who was the chief guest at the Sacco’s annual general assembly at Hotel Africana in Kampala, asked Archbishop Lwanga together with other leaders under the Inter Religious Council of Uganda to return and visit his farming projects that they missed during their last week’s visit to Rwakitura, Kiruhura District.
Archbishop Lwanga appreciated the President’s donation to the Sacco and promised to provide accountability after using the money to lend to members for development projects. The Sacco managing director, Ms Victoria Lukwago, said it has benefitted more than 2,000 households, with six of every 10 members being women in eight districts of Butambala, Kampala, Luweero, Mpigi, Mukono, Nakaseke, Buikwe and Wakiso.