The Complexities of SACCO Tax Exemption: Insights and Debates

KAMPALA – President Yoweri Museveni cautioned the Uganda Revenue Authority (URA) to stop over taxing SACCOs. The President’s warning followed a complaint raised by the parish priest of Rubindi Parish Catholic Church, the Rev. Fr. Felix Bikwatsizehi, who said the parish SACCO pays cooperation tax of 30%, which is affecting the growth of the institution. The president again warned URA not to tax SACCOs during the UN International Cooperatives Day at Kabwohe Sheema on 02, July 2015 and this was an equivalent of a presidential directive. The mandate for the Minister of trade, Industry and Cooperatives development by then Mrs. Amelia Kyambadde was to write a cabinet white paper and implement the President’s directive. Unfortunately, she was reluctant and unbothered about this directive.

This followed an intensive lobbying process by Cooperative stake holders which included Uganda Cooperative Alliance (UCA), Uganda Cooperative Savings and Credit Union (UCSCU) and the Uhuru Institute for Social Development. These institutions composed a team of experts to keep engaging and lobbying from the parliamentary committee on trade about the presidential directive on not taxing SACCOs. In several meetings, the staff from the Ministry of trade, Industry and Cooperatives did not have authority to debate independently about the tax exemption and I remember in one of the meetings when engaging the parliamentary committee on trade and cooperatives a staff from the Ministry had this to say “I am here as a government worker and I earn my salary from government and therefore there is no way I can support SACCOs not to pay taxes” Mr. Opolot exclaimed. We were shocked because Mr. Opolot was part of the lobbying team we had gone with. What a contradiction and betrayal?

In 2017, Parliament approved a proposal through the Finance Ministry to exempt SACCOs from taxes for the next ten years effective July 1, 2017. Finance Minister Matia Kasaija explained why Savings and Credit Cooperative Organization (SACCOs) had been exempted from paying tax on their incomes effective July 1—for ten years. “I want every Ugandan to belong to a financial institution of some sort. This business of keeping money under the mattress should stop. SACCOs are the nearest (to what) many people in villages have as financial institutions,” he explained. Speaking at a post 2017/18 budget dialogue organized by the Uganda Revenue Authority in Kampala, Kasaija said with more Ugandans keeping their money in formal settings, the economy will benefit in the long run.

Why did the finance minister make U turn and made an appeal against the SACCO tax exemption? During plenary that was debating the Income Tax (Amendment) Bill, 2018 that was tabled by finance minister in April, the Bill proposed to repeal section 21[1] that was introduced in 2017 to halt SACCOs income tax exemption up to June 30, 2027. MPs passed the Bill, but rejected some of the tax proposals that among others included taxing SACCOs. Members of Parliament overwhelmingly rejected government’s proposal to impose 30% levy on Savings and Credit Cooperative Societies (SACCOs).” 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. The rationale behind exempting SACCOs from taxes could be to promote their growth and sustainability. By reducing their tax burden, SACCOs may have more resources to invest in their members and expand their services, thereby contributing to poverty alleviation and economic empowerment at the grassroots level.

Why must International Monitory Fund (IMF) not put its nose into the SACCO tax exemption! Reference is made to my article published on March 20th 2024 by PML media (www.pmldaily.com ) on why SACCOs large SACCOs fear BOU regulation and Supervision, I informed the readers of a sinister motive by the World Bank in this project. I further promised my readers that in my next issue, I was going to write about the losses and gains of the SACCO 10 years tax exemption and no sooner I started writing, on Monday, March 25, 2024 the IMF made its way to press government on SACCO tax exemption “ The International Monetary Fund (IMF) has said government should consider removing exemptions on incomes of Savings and Credit Cooperative Societies (Saccos) as a near-term revenue reform priority to boost corporate income tax collections”

The IMF? The IMF was founded by 44 member countries that sought to build a framework for economic cooperation. The IMF was established in 1944 in the aftermath of the Great Depression of the 1930s. The IMF serves as the world’s “financial firefighter.” When a country’s economic problems threaten to undermine global financial stability, the IMF is called upon to douse the flames. To put out said fires, the IMF can provide loans to alleviate the country’s economic stress. All member countries contribute funds to the IMF, which pools those funds to lend to countries in trouble. How does the IMF know when trouble occurs? Countries agree to allow the institution to monitor their economic and financial policies. The IMF uses this information to issue every country a regular (usually annual) report card known as an article IV consultation. IMF is the lender of the last resort. The two most recent IMF loans disbursed to Uganda are a US$492 million commitment under the Rapid Credit Facility in May 2020 and a US$1 billion commitment begun in June 2021 under the Extended Credit Facility (ECF). According to the IMF, the loans under the ECF have an interest rate of zero, with a grace period of five and a half years, and a final maturity of 10 years.

The World Bank? Founded in 1944 at the UN Monetary and Financial Conference (commonly known as the Bretton Woods Conference), which was convened to establish a new, post-World War II international economic system. The World Bank is related to the UN, though it is not accountable either to the General Assembly or to the Security Council and its mandate is to lend money to its client countries through various programs every year. The World Bank is the world’s largest multilateral creditor institution, and as such many of the world’s poorest countries owe it large sums of money. Indeed, for dozens of the most heavily indebted poor countries, the largest part of their external debt—in some cases constituting more than 50 percent—is owed to the World Bank and the multilateral regional development banks. According to some analysts, the burden of these debts—which according to the bank’s statutes cannot be canceled or rescheduled—has perpetuated economic stagnation throughout the developing world. Despite lending restrictions due LGBTQ World Bank Loans to Uganda weas report at USD 7.4 Bn (World Bank report April 2024)

Why is World Bank and IMF very much interested in the SACCO business in Uganda? The world Bank Insists that Large SACCOs must be regulated and supervised by the Central Bank and the IMF is suggesting that tax exemption on SACCOs must be repealed and restricted to “microfinance cooperatives serving low-income investors”. IMF indicated that as of June 2023, revenue forgone from tax expenditures administered by URA was estimated at 1 percent of gross domestic product and even larger part of exemptions was administered outside URA’s domain. Reports have previously put foregone taxes due to exemptions at Shs7 trillion. The International Monetary Fund (IMF) and the World Bank share a common goal of raising living standards in their member countries. Their approaches to achieving this shared goal are complementary: the IMF focuses on macroeconomic and financial stability while the World Bank concentrates on long-term economic development and poverty reduction. But still the IMF only provides money to countries that are experiencing a statewide economic crisis.

Why should IMF go slow on SACCOs tax exemption. I believe IMF should be pre-occupied with global macro-economic factors which are beyond the SACCO business in Uganda and this is because the SACCOs tax income contributes less than 2% of our GDP. The SACCOs tax exemption must not be repealed and if so, I call upon the MPs who are cooperators to reject the proposal as they have done before. Government should constitute an inter-ministerial committee supported by a team of experts from the line ministry to carry out an assessment on the contribution of the SACCOs 10 Year tax exemption and report back to parliament and cabinet for approval through a tax amendment. Multinational Institutions like IMF and The World should refocus their energy to availing low cost/revolving funds to finance digitalization and climate change initiatives for Cooperatives. Cooperatives in Uganda are not looking for free money but they need low-cost impact funds for long term investment. For example, if SACCO members are to benefit from carbon credit, they need low-cost funds for long term investment of which SACCOs do have. Long term investment is needed for climate change opportunities and digitalization of cooperatives and this will create a resilience and sustainable economy. Finally, SACCOs need a special tax regime with considerable incentives and this shall automatically boost our economy in the long term and more still SACCOs are not Corporations or private entities which are profit driven but they are social enterprises that bank the unbanked and poor population.

Questions for further debate!

Is Uganda experiencing a statewide economic crisis for IMF to intervene as a lender of the last resort?

Is the SACCOs 10-year tax exemption depending Uganda’s economic burden?

Is Uganda’s enactment of the 2023 Anti-Homosexuality Act and subsequent halting of new loans to Uganda by World Bank affecting the SACCOs business?

Did SACCOs reserve the 30% of their income to accelerate institutional capital growth for long term investment?

Next Issue: Why should Moslems abandon unethical Uganda’s banking habits and embrace Salaam Bank. Be faithful and transparent!

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Denis Tukahikaho Ph.D. {Ph.D. Environmental Economics, Ph.D.-Student, Islamic Banking Philosophy, MBA -SME, Master of Oil & Gas Law, BBA -Banking &Finance and Diploma in Quantitative Economics}

CEO -Denning & YounG Ltd

General Secretary – Allied Supermarket Owners Ltd.

Ex-Chairman -NAFASI Multi-Purpose Cooperative Society.

Denis is a global consultant on Cooperatives, Banking, Microfinance, Faith Based Financial Institutions and renewable energy Finance and Investment.