Africa-Press – Ghana. On a Sunday sunny afternoon, Madam Anne Bayor, a peasant farmer at Kyeatanga, a deprived community along the Block Volta River in the Wa West District, strolled into the banking of the Wa Community Cooperative Credit Union (WACCU) at Dorimon to withdraw money.
It was the third week of June, and Madam Bayor was mobilising in preparation for the ensuing farming season – she needed some money to buy farm inputs and for mechanisation services.
Her savings could not suffice her financial needs to cultivate her two-acre field on which she planned to inter-crop maize, groundnuts, and leafy vegetables for her family consumption.
However, as a member of WACCU, Madam Bayor requested an instant financial bailout from the Union to supplement her savings to enable her to meet those demands, and in no time, the loan was paid into her savings account.
Madam Bayor, in her late 30s, would repay the loan through her sheanut harvesting she had been doing for close to a decade.
Similarly, Madam Zainab Abu, a trader at Bussie in the Daffiama-Bussie-Issa District, accessed an instant affordable loan from the WACCU branch at Bussie to support her business.
Ordinarily, Madam Anne Bayor and Madam Zainab Abu would not have been able to access the loan from the traditional banks situated in Wa without collateral such as landed properties.
Like Madam Bayor and Madam Abu, many vulnerable people in society – persons with disabilities, the aged, the poor, and people in underserved rural communities sought refuge in credit unions for financial services.
The place of credit unions
The importance of credit unions in Ghana in promoting financial inclusion and driving economic development in underserved rural areas and among the poor in society cannot be overemphasised.
Credit unions, undoubtedly, ensured, and guaranteed access to appropriate, affordable, and timely financial services such as savings, loans, and insurance for individuals and businesses, regardless of their income level or geographic location.
Globalisation through technological advancement had widened the divide between people who had access to financial systems and those who do not.
That had made financial inclusion not merely a development buzzword, but a cornerstone of equitable progress and social advancement.
The limitations of credit unions
Credit unions are, by law, barred from providing certain products and services in the banking sector, which the traditional banks provide.
For instance, credit unions cannot offer forex service, not because they do not have the capacity to render such services, but they are restricted by law.
Also, credit unions are not part of the clearinghouse, which had made it more cumbersome to do certain transactions, such as issuing cheques to their members, which compelled them to write cheques at the back of a bank.
Taxes on credit unions
Despite its significant role in ensuring financial inclusion, high tax slapped on credit unions is hampering their growth and sustainability.
Currently, credit unions are also required to pay an annual tax of 25 per cent on their surpluses, an obligation of only traditional banks, which actors in that sector described as injustice to credit unions.
According to Mr Abraham Dakurah, the Supervising Manager of WACCU, credit Unions are considered not-for-profit entities and, therefore, exempted from taxes.
He, however, regretted that the Ghana Revenue Authority (GRA) “descended on the Credit Unions” with the 25 per cent tax a few years ago.
He said the situation is adversely affecting the economic stability of the Union members, who are vulnerable people in society – persons with disabilities, the aged, and the poor.
Mr Stephen Dadzi, the Upper West Regional Director of the Department of Co-operatives, indicated that though credit unions must pay taxes, it should not be pegged at the same rate as the traditional banks since the services are not equal.
“When we talk of co-operatives, they are not like traditional banks, so you cannot charge them the same rate you normally would charge the traditional banks. So, 25 per cent tax is too high”, he stated.
For Mr Abobo Kenneth, the Upper West Regional Manager of the Ghana Co-operative Credit Union Association (GCCUA), the 25 per cent tax on annual surplus reduces the net surplus at the disposal of members to share.
That, in turn, affects the financial viability of the members who are rural poor and vulnerable people.
“The disposal net surplus of the credit union is part of the union capital, which they can use to undertake other developmental projects and expand their services to members to enhance operations.
As a result, 25 per cent tax on the surplus means that the activities to enhance financial inclusion will also be reduced by that margin”, Mr Abobo explained.
Unfair treatment
The 25 per cent tax on surplus for traditional banks slapped on Credit Unions can be described as unfair treatment to credit unions.
Since credit unions are limited in their service and products compared to the commercial banks in the country, it would rationally be just to vary the tax rates that the two categories of financial institutions paid.
“Yes, we should contribute something to the development of the country, but why should we pay the same rate as the banks when our hands are tied when it comes to certain products and services that the banks render, which the law prevents us from rendering them.
“Some of the credit unions have become big now, and we have the muscle to be able to go into those spaces, but the law does not allow us.
So, it is like tying your hands behind you and asking you to box with a very prolific boxer,” Mr Dakurah lamented.
The appeal
Mr Dakurah appealed to the government to reduce the taxes on Credit Unions in Ghana to enable them to remain competitive in the financial market.
He proposed that the government should consider reducing the taxes on Credit Unions from 25 per cent to at most ten per cent (10%) to enable them to thrive and support their members.
It is also about time the government allowed Credit Unions to provide all the banking services that they have been restricted from providing to be competitive with the traditional banks if they must pay the 25 per cent tax.
Mr Dadzi observed that though Credit Unions cannot operate without paying taxes, the 25 per cent tax rate is too exorbitant and appealed to the government to consider reducing that rate.
On his part, Mr Abobo entreated the government to implement policies, including tax policies that promotes healthy financial institutions for credit unions to function
“The purpose of credit unions’ existence is to promote and empower their members.
As a result, the government, departments, and agencies should be interested in helping credit unions drive that agenda to reduce poverty in our societies,” he posited.
Recommendations
Considering the inevitable role of credit unions in ensuring financial inclusion, it is incumbent on the government to implement financial policies and regulations, including the reduction of the 25 per cent tax on credit unions to at most ten per cent (10%) to enable credit unions to thrive
That would also reflect the not-for-profit status and limited operational scope of credit unions compared to traditional banks.
A differentiated tax regime would also distinguish between profit-driven commercial banks and cooperative-based credit unions, ensuring fairness and proportional taxation based on service offerings and social mission.
The regulatory framework within the banking sector should be reviewed to allow credit unions to offer competitive financial services such as forex trading, cheque issuance, and participation in clearinghouses, enabling them to compete fairly with banks if they would pay the 25 per cent tax.
Conclusion
The role of credit unions such as WACCU in advancing financial inclusion, especially among the rural poor, women, and other vulnerable groups in Ghana, is both critical, impactful, and inevitable.
Through accessible and affordable financial services, credit unions are bridging the gap created by mainstream banks, enabling economic empowerment at the grassroots level.
It would also ensure access to finance by Small and Medium Enterprises (SMEs) who do not have the capacity, including collateral to access loan from the mainstream banks.
However, the imposition of a 25 per cent tax on their annual surplus, equivalent to what is charged to profit-driven traditional banks, poses a serious threat to their sustainability and ability to serve their members effectively.
This tax regime had failed to reflect the social mission, operational limitations, and not-for-profit nature of credit unions.
There is, therefore, a compelling need for the government to review and reduce the tax burden on credit unions or expand their legal mandate to offer broader banking services.
Supporting credit unions through fair tax policies and regulatory reforms would not only bolster rural economic resilience and financial inclusion but also reinforce Ghana’s national commitment to inclusive and equitable development.
Source: Ghana News Agency
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