Press Releases

Tax on Credit Unions The Wrong Move

The Barbados Co-operative & Credit Union League is very concerned about the proposed move by Government to impose a 0.20% tax on the assets of financial institutions, including credit unions.  The credit union sector only learned of this tax imposition when it was announced by the Honourable Minister of Finance during the recently concluded Estimates Debate for the fiscal year 2014/2015.

The League as the representative body for credit unions is extremely disappointed that there was no consultation with the sector prior to the announcement by the Minister of Finance.  We reasonably would have expected to have an opportunity for dialogue before a tax such as this is implemented.  We therefore wish to register our concerns about the process; a movement that represents over 160,000 persons is certainly deserving of an opportunity to enter into dialogue on behalf of its membership, which represents well in excess of 50% of the adult population of this country.

 

 

On the issue of the tax itself, we wish to register our very strong objection.  There are several reasons which we would like to advance, to make a strong case for government to rethink its position on this controversial tax.

First and foremost, credit unions are fundamentally very different from other types of financial institutions.  Credit unions are not for profit organisations and have a mass-based membership and a commitment to provide affordable financial services to those at the lower end of the social spectrum.  They are fundamentally savings institutions that make affordable loans to members.  Credit unions have a strong commitment to investing in their communities and continue to do so notwithstanding the current financial challenges. 

 For the aforementioned reasons, credit unions have generally enjoyed a non-taxable status throughout their existence. In the United States of America, efforts were made to tax credit unions and the USA legislators did not agree to the imposition of taxes given the uniqueness of credit unions among other things. Furthermore, no other jurisdiction in the Caribbean imposes such a tax on credit unions. Rather, other Caribbean jurisdictions encourage and facilitate the growth and development of credit unions and other co-operatives

Secondly, because given our strong philosophical heritage, credit unions will be negatively impacted since our institutions would be inclined to absorb this expense rather than pass on this tax imposition to our members.

Imposing burdensome fees to compensate for the tax imposition is just not how we do business in the credit union sector and furthermore this would only be an additional burden on our members, many of whom are grappling with the day-to-day struggles of life in this very challenging economic environment.  

Thirdly, credit unions are working assiduously to comply with all the new requirements of the new regulatory environment.  One of these requirements is the attainment of a capital standard of 10% of assets.  We contend that the imposition of this tax at this time will be a setback for credit unions.

 We have carried out an analysis of the impact of this proposed tax on our member societies and there is some cause for concern.  The analysis reveals that some fifteen (15) credit unions may record losses as a result of the imposition of such a tax during the relevant fiscal year.  In addition, several others will see erosion in their capital base. This begs the question whether a thorough analysis was done of the impact of this tax on the credit union sector.

The analysis further indicates that the imposition of the tax will extract a sum of $3.6 million from the movement at this time.  A tax expense of this magnitude will remove resources from the credit union system that could be better utilised to cushion the impact of the further increases in non-performing loans that will inevitably arise in an economy that is still in recession.  At the individual credit union level, payment of the tax will impact on capital or the savings of members.  It is noteworthy that the tax is on assets, and loans comprise 76% of the assets of credit unions. 

Credit unions are making their best efforts to find creative ways to alleviate the hardship being experienced by their members especially those members that lost their jobs as a result of retrenchment in the Public Sector as well as recent layoffs in the Private Sector as well.

In addition to the above, we are somewhat wary of temporary measures.  Our recent experience has not been encouraging in this regard.  For example, the removal of the tax allowances for credit union savings was expected to be for a duration of 18 months only.  Therefore, we do not draw any comfort from the promise that the tax on the assets of credit unions is intended to be levied for one year only. 

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Barbados Co-operative & Credit Union League Ltd.
1st Floor, Co-operators General Insurance Building
Upper Collymore Rock, St. Michael, Barbados

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