– Ref Income tax act, CAP 470 Sec 19A (4)
A Sacco is a mutual organization (organizations that generate income by trading with their own members). A person is deemed not to have generated income by trading with himself, thus interest income of a SACCO (derived from members) is exempted from taxation
The taxable income of a SACCO is
- 50% of interest income from non-members (banks, Treasury bill etc.)
- The gross rental income
- Capital gains (subject to capital gains tax)
- Any other income that may be deemed to be taxable
Since the main income of a SACCO is exempted from tax, it follows that administrative or operating expenses are not deductible. This is because expenses are deductible only if they are incurred wholly and exclusively in earning taxable income.
Incomes earned by SACCOs with FOSAs have been subject to dispute, being considered in the category of other incomes which are taxable as seen in the case of Muramati SACCO Vs KRA, Sheria SACCO VS KRA, Tenhos SACCO vs KRA. In a case of Nyeri teachers SACCO VS Commissioner Domestic taxes (2016) the court held “however, when it comes to front office services, those could be more akin to commercial banking”