Expand tax relief to SACCO, micro-finance home loans

The employees whose salaries are subjected to the statutory monthly Pay As you Earn Tax (PAYE) will pay a little less tax this month.
The reduction mentioned above is courtesy of a 10 per cent increase in individual graduated rates of tax and personal reliefs that remained unchanged since 2005.
These changes have increased the monthly tax-free income from Sh11,135 to Sh12,260.
However, the impact of the change will not be felt by the affected employees due to the negligible amount of disposable income the change leaves in their pockets.
Depending on the level of salaries, the saving will buy the low income earners only two packets of 500ml milk and one 400-gramme loaf of bread while the high income earners will get six packets of 500ml milk and six 400- gramme loaves of bread.
While the change highlighted above cuts across all individual taxpayers, a category of taxpayers is going to “laugh all the way to the bank’’ come end-month, thanks to the doubling of the mortgage interest relief provided under Income Tax Act which changed from Sh12,500 per month to Sh25,000 per month, resulting in additional disposable income of up to Sh3,750 per month.
Contrary to media reports, Savings and Credit Co-operative Societies (SACCOs) and microfinance institution (MFIs) borrowers will not benefit from the relief because they do not fall under categories whose home loans qualify for the relief.
Currently, only borrowings from a bank licensed under the Banking Act, an insurance company, a building society and the National Housing Corporation (NHC) qualify for the relief.
Borrowers under NHC’s tenant purchase scheme started enjoying the relief less than 10 years ago.
Denying borrowers under MFIs and SACCOs the relief is inequitable as it contradicts one of the principles of a good tax system.
The equity principle provides that people in similar circumstances should be subjected to similar tax treatment.
Ironically, SACCOs qualified as the fourth specified financial institutions whose home loan interest qualified for mortgage relief before a change was made in 1992 to disqualify them.
The reason given for the disqualification was that they were included in the list inadvertently as the borrowings are restricted to only members of a specific co-operative and not to the public at large.
However, with the changes in sacco societies’ landscape where the asset base, deposits and memberships have grown significantly over the years, the justification given then may not hold water anymore.
This is due to the fact that SACCOs representing various interest groups have spread to every corner of our country and membership is no longer the preserve of a few. Studies by FSD Kenya shows presence of SACCOs and MFIs in 85 per cent of the counties in Kenya, resulting in only four counties not represented.

http://www.businessdailyafrica.com/Opinion-and-Analysis/Expand-tax-relief-to-sacco-micro-finance-home-loans/539548-3793128-13odt0bz/