Inflation and taxes discourage the use of electronic payment methods

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Inflation and taxes discourage the use of electronic payment methods

A private report explains why merchants in the country encourage payment by cash or transfer

High inflation, high bank fees and complex tax burdens complicate the rapid adoption of electronic payments in Argentina. This means that on many occasions consumers find that businesses increasingly prefer payment by cash or bank transfer, a method that they promote by offering promotions if a purchase with that method is canceled .

“Argentina faces significant challenges in modernizing its payments systems, which has led to a clear regression towards older methods.” This has been indicated in a report prepared by Leonardo Piazza, director of LP Consulting, a consulting firm that analyzes consumption trends in the country.

He explained that while electronic means of payment (EPM) are increasing in the world, “the country is lagging behind in terms of payment systems, finding itself in a situation that can be considered outdated and more primitive.” Going back.” “Types of Payment.”

To give an example, the report details a particular case: “Merchants often show displeasure when a customer uses a debit card; If the customer uses a credit card, merchants react with surprise or even disbelief; And if the customer tries to pay with their cell phone, merchants prefer to accept only bank transfers.” Said. “In this context, the preferred payment method for merchants remains cash,” he said.

There are many reasons why this is happening in the country, but LP Consulting highlights three. On the one hand, it talks about the commissions of payment system operators, since both banks, in the case of debit and credit cards, and fintechs, in the case of virtual wallets, charge commission for each transaction. Traders may have to pay higher commission.

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Secondly, he cites delay in payment. ,In an inflationary economy like Argentina, delays in crediting payments can mean losses for merchants, especially if it involves a delay of several days or weeks. The report shows.

But he also gives another reason Provincial taxes in the form of gross income that “hinder the acceptance of electronic or digital payments by imposing tax withholdings in an overly burdensome manner,” Precisa LP Consulting.

“This tax has increased because, for the same transaction, two withholdings of gross income are applied. One occurs when the merchant makes a transaction with a credit card (known as the Sirtack Retention System), and the other occurs when the bank credits the payment made from the credit card (known as the Sirtack Retention System). ,” he detailed.

Additionally, “any province may require banks to place restrictions on traders who have never operated in that province,” he says. Thus, it is possible for a merchant to withhold gross receipts from a province in which they have never made sales, simply because one of their customers is registered in that province.

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“As a result, collecting sales from debit cards incurs additional costs due to bank holds (Sirrecb) while the costs associated with using credit cards are even higher due to payment delays and double retention (Sircreb and Sircreb) . ), “he indicated.

The rise in MEPs is a global trend, hurting the use of cash. Regardless of income level, countries are experiencing substantial digitalization of their payments and reduced cash withdrawals. In fact, “MPEs play a vital role in the financial inclusion of people, given that they form the gateway to the financial system,” LP Consulting said.

He points out for example that in Chile and Uruguay, and still in some developed countries, they still receive payments in cash, but in other countries, such as the Nordics, they have outright eliminated cash payments. have a deliberate policy and they are very close to everything. The payment system is with electronic or digital money.

It also makes clear that Argentina is part of this behavior and shows a clear lead of MPE over gross domestic product (GDP) (76.6% for 2Q2023 vs. 58.2% for the same period in 2022).

The consultancy states that “MPE shows continued and high growth, where the number of operations per adult reached record values ​​and variation rates during the first half of 2023” and points out that “this trend covers all payment instruments electronics, it Given that each of them recorded a continuous increase in the number of transactions per adult to a greater or lesser extent.

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However, “the country is lagging behind in terms of payment systems, finding itself in a situation that could be considered outdated.”

Overlap of liens is one of the main reasons the consultancy identifies when merchants show disinterest for the use of MPE and explains why they only accept virtual wallets with transfers. “Unlike payments made with QR codes, transfers are not considered a means of payment, as prohibitions apply with the latter.”

An exit

That’s why he suggests as a solution “Ban all withholdings and integrate VAT with gross income” “To guarantee that the payment system is not used by any entity as a mechanism for advance tax collection.”

To make this proposal attractive to the provinces, “In addition to the bank withholding, it is important that the Federal Public Revenue Administration (AFIP) celebrates cooperation agreements with the provinces to integrate the collection of VAT with gross income.” LP Consulting said.

This integrated collection system is “operationally viable and will significantly improve tax compliance levels, as it will encourage large-scale use of digital money without any restrictions and with it, better information on payments to both the AFI and the provinces.” “, which will allow expanding the tax base for both VAT and IIMB.”

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