Sacco members should expect a significant cut on their dividend payout this season following Income Tax changes that took effect last month.
The new law doubled taxes on members’ dividends from five to 10 per cent as well as withholding tax rate applicable to the dividends payable by a Sacco as an institution as reported by The Star.
In total, Kenya Revenue Authority will take away 20 per cent of each Sacco member’s dividends compared to the 10 per cent it has been charging since 1973.
This means, a member whose gross dividend is Sh50,000 will surrender Sh10,000 to KRA. Last year, this member paid only Sh5,000 in taxes.
This will be a shocker to many Sacco members who are not aware of new changes, even as Annual General Meetings are called.
Kenya Police Sacco which yesterday announced a net profit of Sh1.68 billion for the period ended December 31, 2018 compared to Sh1.48 billion the previous financial year said it will hold its AGM on March 6.
Co-operatives Alliance Kenya chief executive Daniel Marube yesterday said it will be painful for Sacco members who are already shouldering taxes from other quotas.
“Although it is going to be a big shock to members who have already planned for their dividends, there is no much we can do. The law is already operational, we can only abide to,’’ Marube said.
He added that his body is engaging the government on how to encourage saving culture in the country; the current tax regime is a turnoff.
The new tax measure proposed by Sacco regulator before being incorporated in to Income Tax draft Bill, 2018 by National Treasury in June last year is now operational despite Sacco unions’ opposition.
In September for instance, the Kenya Union of Savings and Credit Co-Operatives Limited (Kuscco) went to High Court to oppose application.
In November, although the court stopped the increase of the sacco deposit levy from 0.1 per cent to 1.75 per cent, it failed to retained tax on dividend.
The new tax measure on Saccos comes at a time when the growth of the sub-sector has been steady.