Parliamentary SACCO refunds sh515m to members after taxation controversy

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KAMPALA - The Uganda Parliamentary Savings and Credit Co-operative Society (SACCO) has refunded shillings 515 million to its members.

The development comes after revelations that the tax deductions, which were made from members' earnings, were not in line with legal guidelines.

SACCO chairperson Robert Migadde (Buvuma Island, NRM) disclosed this on September 13, 2024, during the twentieth annual general meeting (AGM) at the Parliament conference hall.

Migadde explained that the decision followed legal advice from the Solicitor General. 
As per his advice, Migadde said the taxation of SACCO members should have ceased in 2017, following an amendment to the Income Tax Act to exempt SACCO’s from taxes for 10 years until 2027.

However, the directive was overlooked by the Uganda Revenue Authority (URA), which continued to levy taxes on members' earnings.

“You may recall that the SACCO’s as entities have been enjoying tax waivers for 10 years since 2017 but the earnings of the members from the SACCO business were still taxed. After the appeal by WAZALENDO and resultant interpretation by the Attorney General (Kiryowa Kiwanuka) members’ earnings are also tax exempt as we talk now,” Migadde explained.

“This should also have been effective from 2017. As a result, our SACCO had withheld tax of shillings 515 million from members for the financial year ending June 30, 2023, which we had not yet remitted to URA. The board has decided that this money should be reversed to respective members’ savings accounts. I wish to inform you that this action has been done and members should be pleased to find this money on their accounts as of June 30, 2024,” he announced.  

The SACCO was conceived by a few members of Parliament in 2002 before later being incorporated in March 2003 with the major Stakeholders as the Members of Parliament.

The SACCOs mission is to be a member-owned financial institution set up to mobilise parliamentarians, staff of Parliament and their resources for their own betterment and for the improvement of the communities in which they live. It boasts of 1,648 members.

Cooperatives state minister Fredrick Ngobi Gume and Uganda Cooperative Alliance (UCA) secretary general Ivan Asiimwe were in attendance.

Reacting off the cuff, several members dubbed the development as a positive step towards restoring trust and ensuring financial justice.

However, there are calls for further investigation into why the error persisted for so long and the measures that will be put in place to prevent similar issues in the future.

The refund is expected to alleviate some of the financial strains on SACCO members, providing them with much-needed financial relief.

Economic squeeze

Although these exemptions were poised at increasing financial inclusion, Southern and Eastern African Trade Information and Negotiations Institute (SEATINI-Uganda) in its April 2019 report titled: Impact of Harmful Tax Incentives and Exemptions in Uganda, expressed scepticism.

Highlighting a significant shift in the financial landscape, the body pointed out that not all SACCOs are small or exclusively serving the rural poor, as commonly perceived.
Subsequently, it warned that the evolving scenario is impacting traditional banks and their customer base.

“The most reliable customers for banks were generally employees as loan payments would be directly deducted at source minimising the chances of defaulting. Now it's common practice in organisations to have a staff SACCO. For example, large institutions like URA, Parliament, the army, Ministry of Finance among others have their staff SACCOs,” the report states.

Adding: “These give staff loans at a much cheaper interest rate compared to banks. Additionally, many SACCOs do not only earn interest income which ideally is exempted from tax. Some have diversified sources such as operating car washing bays, buying and selling property. All these incomes are potentially at risk of escaping the tax net in the disguise of being exempt. Approximately shillings 10 billion was lost in 2017/18 due to this exemption.”