The Irish League of Credit Unions (ILCU) appears to have won the first battle in its campaign to convince the Government that taxation of credit union savings should be treated differently to ordinary savings.
A majority of members of the working group set up to consider the issue has recommended a compromise deal which, The Irish Times has learned, would allow members to hold savings of £7,500 tax free. The threshold above which savers would pay deposit interest retention tax (DIRT) is below the level the ILCU originally argued for but the league is pleased with the outcome, nonetheless. It believes it offers protection to small savers and the estimated 41 per cent of credit union members who have low incomes and no tax liability at all.
"The compromise was not all we wanted but it is a very, very reasonable recognition of what a credit union is," says ILCU President Frank Lynch. "We feel that it's a good and reasonable deal that protects the long-term position of the movement."
What remains to be seen is the attitude of the Minister for Finance, who received the report at the end of September. Mr MCreevy set up the nine-member working group last May after withdrawing tax proposals relating to credit unions following political uproar over the moves.
Meanwhile, the ILCU faces another taxation battle on a different front although the Government has already confirmed it will champion the movement in this particular fight.
Following a complaint from the Irish Bankers' Federation, the Competition Directorate of the European Commission is considering whether or not the credit union movement should pay corporation tax. Mr Lynch is adamant it should not, arguing that the movement is social and voluntary in nature and credit unions are not financial institutions.
"The only reason there are surpluses in credit unions derives completely from the fact that 16,000 volunteers work free of charge," he says, adding that the contribution of voluntary members is worth an estimated £35 million to £45 million to the movement annually. "If we were to factor into our cost base a charge for that, the estimates of corporation tax due would be wiped out completely."
He also points out that credit unions are non-profit organisations and that the amount of interest they can raise is restricted to 1 per cent per month regardless of the commercial rate. They can only source money from within their own community and will often introduce subsidised services if they are in the interests of its members. "We are the last bastion of mutuality, of the co-operative mutual," Mr Lynch says.
Set up in Dublin 40 years ago, the movement now comprises some 536 credit union with around £2.2 billion in assets. With almost 1.9 million members North and South, it has roughly 45 per cent penetration of the population although this increases to up to 75 per cent in some areas.
Mr Lynch says credit unions reach those parts that the banks and buildings societies do not, the "financial deserts" where it is not economically viable for the banks and building societies to maintain branches. Unlike other financial institutions, much of its lending is to the less well-off in society, the C, D and E social categories rather than the A, B and C groups serviced by the banks and building societies. The ILCU says the movement is still combating money-lenders in many urban areas on a daily basis. In return for recognition in the tax code that credit unions are not just another type of financial institution, the movement is happy to build on its social role, offering to become a conduit for any Government or social policy that supports community development.
Already it works with the Department of Social Welfare providing management advice and budgeting services, to better help people manage their money.
Above all, the movement is keen to have its tax position regularised and its special status recognised ahead of any move to harmonise taxation across the European Union at a later date.
Among the other challenges facing the movement, Mr Lynch identifies a low interest rate environment. But he says the credit unions are committed to ensuring that they are competitive and that members get a better overall package on savings and loans.
"If that doesn't happen, it becomes questionable as to what the reason for the credit union is. The whole purpose of us being there is to ensure that members' needs are met."
Following the introduction of the new Credit Union Bill last year, the movement now has the right to issue cheque books, debit cards and have ATM machines and is gearing up to offer these services to its members.
