Credit unions scoff at banks’ suggestions they should pay asset tax
The local credit union movement is dismissing calls by the commercial banking sector for the recently announced rise in the bank asset tax to be extended to all financial institutions.
Soon after Minister of Finance Chris Sinckler announced last week that the tax would increase with immediate effect from 0.2 per cent to 0.35 per cent, President of the Barbados Bankers’ Association David Noel told Barbados TODAY the levy should be shared “equitably across the entire financial sector”.
“We understand that we have a role to play in helping the country to get through this challenging economic period. We believe, however, that it is important that any increased tax burden be shared equitably across the entire financial sector,” Noel said then.
Similar sentiments were expressed Wednesday by Managing Director for Retail and Business Banking at CIBC First Caribbean International Bank Mark Hill, who told reporters the hike would affect the banks’ bottom line.
He also made a case for the tax to be applied across the board.
However, President of the umbrella Barbados Cooperative & Credit Union League Ltd [BCCULL] Barry Hunte was not prepared to entertain the thought, issuing a strong retort this afternoon.
Hunte suggested that the commercial banks operated primarily for profit, while credit unions had people at the centre of their operation.
“We strongly disagree [with extending the tax]. Whereas banks pass on any additional costs to customers while not giving any reasonable return on the savings and deposits, the credit unions don’t do that. So the banks are awash with capital; the banks are very liquid,” he told Barbados TODAY.
“The focus of a bank is different from the focus of a credit union. The credit union has and always will continue to put people at the centre of its existence . . . people helping people, that is what we are about; and this is not any sentimentality, this is the reality of the credit union movement, of the Barbadian member, in St Lucia, in Dominica, in the Eastern Caribbean, in Jamaica, in Trinidad, you name it.”
The BCCULL head, whose organization has said that taxing credit unions should not be seen as a viable alternative to correcting fiscal challenges confronting the island, contended that additional taxes would hinder the movement’s mandate of helping people, and would be a stumbling block to the social and economic development of ordinary Barbadians.
He reiterated that the movement would continue to reject any imposition, or calls for the imposition, of new taxes or levies on credit unions and cooperatives.
“Those taxes [asset tax] were imposed on banks as financial institutions under a specific Act. The taxes which were also imposed [previously] on the credit union assets [and expired in March under sunset legislation], were also imposed under a specific Act and they were imposed on non-banking financial institutions. That particular piece of legislation, which I must remind you was sunset legislation, impacted the credit union movement in Barbados,” Hunte told Barbados TODAY.
Hunte took a further swipe at the commercial banks, saying they set a range of rates for their own benefits “and not in the interest of customers . . . unlike the credit union movement”.
“We are for members, we are not a for-profit organization. So any surplus that is realized at the end of a financial year, is ploughed back into the movement and kept in circulation in terms of educational development [and] in term of loans to members,” the BCCULL head emphasized.
When Sinckler announced during his contribution to the 2014/2015 Estimates of Revenue and Expenditure that all financial institutions, inclusive of credit unions, would be required to pay a tax on their assets at the rate of 0.20 per cent of assets for a defined period, the credit union movement responded swiftly that it was a bad idea.
“The [BCCULL] wants to make it abundantly clear that it is vehemently opposed to this latest fiscal measure, which stands to have a significant impact on credit unions and their members. This measure will take substantial resources out of the hands of its members and the credit union system. The league is therefore calling on the minister to rethink this policy measure,” the umbrella body said in a statement at the time.
It said then that several credit unions would likely experience losses or have their capital depleted below the required capital adequacy ratio of ten per cent of assets and would have to take the money from reserves which served as a cushion that protected members’ savings and the credit union from economic shifts.
“Taxing credit unions will compromise their ability to serve the needs of those at the lower end of the social spectrum,” the BCCULL said at the time.
“Credit unions will either be forced to pass on these taxes to members in the form of fees, higher loan rates, lower rates on deposits; or absorb the expense to the detriment of their capital. The first three options are very unlikely, as credit unions’ tend to shield their members from these types of costs. Therefore absorption is the most likely route with its unfortunate implications,” it concluded.