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Daily Monitor has recently reported that the government's previous pledge to write-off tax arrears of SACCOs comes because they plan to put on a new focus on collecting taxes from SACCO profits. There has always been a tax on profitable income of SACCOs (income generated from interest for example), but many SACCOs in Uganda did not know about the law; therefore, they have not been paying the taxes. The government says it will forget the past arrears accumulated from SACCOs because of the lack of knowledge, but will begin collecting in earnest in the next year.

Government wants all SACCOs to start paying tax. As an incentive to encourage them to start paying tax, government has decided to waive all tax arrears owed by SACCOs as at December 31 2015. The proposal contained in the Finance Bill 2016, means SACCOs who have outstanding tax liabilities to pay do not have to worry about these tax arrears any more.

Uganda Revenue Authority (URA) is going to write them off as uncollectable bad debts. The fact that government has found it necessary to write off all tax arrears owed by SACCOs should now be taken as a clear policy statement to all SACCOs in Uganda that as far as URA is concerned, SACCOs are supposed to pay tax.

SACCOs in Uganda are owned, governed and managed by members who have the same common bond. They are legal bodies registered under the Cooperative Societies Act. SACCOs are economic institutions involved in business activities for purposes of making a profit to grow, survive and become sustainable.

They rely on their members contributions in form of savings and shares as the main source of capital. They then use this capital to lend to their members usually at low interest rates. People who join SACCOs are often motivated by two objectives, to earn a dividend as return on their savings with the SACCO and also to access affordable loans leveraging on their accumulated savings.

SACCOs are like banks in the sense that they earn revenue in form of interest and fees charged on loans. This is the SACCOs chargeable income for tax purposes.

According to the tax laws of Uganda, SACCOs are required to pay tax on their chargeable income; that is, the interest income they earn on the loans they make to their members. In addition to paying income tax at the rate of 30 per cent on their profits, SACCOs are also expected to collect withholding tax on the dividends they pay to their members. The withholding tax rate on dividends is 15 per cent.

It appears that SACCOs were not aware that they are required to pay tax. As a result, they had accumulated tax arrears with the URA. The government recognises the importance SACCOs play in financial inclusion and economic development and would not want them to be burdened by tax arrears they were not aware of. This must be the reason government has decided to waive all tax arrears owed by SACCOs as at the end of last year.

With effect from this year, all SACCOs in Uganda will be expected to pay tax, unless they are specifically exempted from paying tax. A SACCO may be exempt from paying tax on its income if it qualifies as a tax exempt organisation.

Some people will argue that taxing SACCOs is not right, considering the role they play in alleviating poverty in Uganda. I agree. SACCOs play a very important role in Uganda with regards to providing access to finance.

They are now part of our mainstream financial institutions. They are also key in mobilising savings. However, the challenge of broadening the tax base in Uganda requires every person, company, business, institution and organisation involved in an economic activity and earning income or making profits to make their fair contribution to the government treasury. This includes SACCOs.

Many people dislike paying taxes. Yet, like death, paying tax is a fact of life. The best one can hope for is that the taxes collected are put to good use for the benefit of all citizens.