Millions of Kenyans who rely on Savings and Credit Cooperative Societies (SACCOs) for their financial survival are awaiting a pivotal decision from the National Treasury, as an aggressive push to scrap excise duty on internal cooperative transactions gains momentum. The Kenya Union of Savings and Credit Cooperatives (KUSCCO), the apex body for the sector, has tabled a comprehensive tax reform proposal that seeks to dismantle the 20 percent excise duty currently levied on loan processing and account maintenance fees.

For the average Kenyan—from the primary school teacher in rural Baringo to the small-scale trader in Nairobi—this is more than a technical fiscal adjustment. It is a battle over the cost of credit and the survival of the country’s most resilient financial pillar. With SACCOs serving as the primary source of affordable capital for over 6.8 million members and holding nearly 30 percent of the national savings pool, the outcome of these negotiations will effectively determine whether the cooperative sector remains a sanctuary of financial inclusion or becomes another casualty of broadening tax nets.

The Doctrine of Mutuality Under Siege

At the heart of the debate is the principle of mutuality, a long-standing tenet of cooperative law that holds that transactions between a cooperative and its members are essentially internal arrangements, not commercial trades. KUSCCO argues that by classifying these internal fees—such as loan application charges or ledger maintenance—as taxable commercial services, the government has inadvertently penalized the very act of collective saving.

The current tax regime, solidified by the Finance Act of 2021, grouped SACCOs with commercial banks for the purpose of excise duty on "other fees," subjecting them to a 20 percent levy. Practitioners argue this is a fundamental policy error. When a member pays a fee to their own SACCO to process a loan, they are effectively paying a tax to access their own pooled capital. This logic, KUSCCO contends, fractures the identity between the contributor and the beneficiary, effectively treating a community’s self-help mechanism as a profit-making enterprise.

• 6.8 million: The estimated number of active SACCO members in Kenya as of 2024.
• 30 percent: The portion of Kenya’s national savings estimated to be held within the cooperative movement.
• 6.43 percent: The contribution of SACCO assets to Kenya’s national nominal GDP in recent fiscal cycles.
• 20 percent: The current excise duty rate on financial fees that the KUSCCO proposal aims to repeal.

The Economic Ripple Effect

The stakes extend far beyond the balance sheets of individual societies. SACCOs have historically functioned as the shock absorbers of the Kenyan economy. During periods of high inflation or credit crunches within the formal banking sector, SACCOs have provided the liquidity necessary for SMEs to pivot and households to manage emergencies. However, the cumulative effect of rising operational costs, exacerbated by the 20 percent excise tax, is beginning to show.

Reports from the sector indicate that the tax burden is often passed directly to the member. A loan that was previously affordable now carries a hidden premium, pushing many borrowers toward the unregulated digital lending market, which offers speed but often at predatory interest rates. Economists warn that if the tax is not reviewed, the resulting rise in loan defaults and the growth of dormant accounts could undermine the systemic stability of the entire cooperative sector. By removing the levy, the government would not only be providing immediate relief to millions of households but also signaling a strategic intent to protect the primary vehicle for grassroots capital mobilization.

A Path to Progressive Reform

Beyond the removal of excise duty, the KUSCCO submission to the Treasury includes calls for broader reforms to individual income tax bands. The proposal advocates for raising the tax-exempt threshold, arguing that the current bracket system disproportionately squeezes middle- and low-income earners. By widening these bands, the umbrella body suggests that the government could actually stimulate broader economic activity. As workers retain a larger portion of their take-home pay, the resulting increase in disposable income would likely flow back into the economy through consumption and increased savings within SACCOs, ultimately broadening the government’s overall tax base in the long run.

The Treasury now faces the delicate task of balancing its immediate revenue requirements against the need to preserve an institution that serves as a cornerstone of the national economy. Previous budget cycles have shown a clear preference for widening the tax net, but the cooperative movement’s unique position as a member-owned entity provides a strong legal and social basis for a different approach. As negotiations continue behind closed doors in Nairobi, millions of members remain hopeful that their collective voice will finally be reflected in the national budget. The decision will not only shape the financial future of the cooperative movement but will also test the government’s commitment to protecting the most vital financial lifeline for ordinary Kenyans.