Discount for cash payments? Not to evade VAT
This post is also available in:
It might be that you have been faced with a shop owner offering you a discount, sometimes amounting to 10% of the value of the product, when settling the bill in cashMoney in physical form such as banknotes and coins. More upfront. That could sound like the owner is seeking to avoid taxes, while, on the contrary, he or she is most likely trying to channel earnings directly into his or her business instead of further financing credit or debit card issuers.
Indeed, this is a very common scenario in many countries, including in Argentina. Many merchants try to encourage consumers to pay in cash – even though they are required by law to also accept electronic payments – because the total amount of fees they incur on any given purchase amounts to 10,3% of the total. And over half of that is linked directly to the bank, card and POSAbbreviation for “point of sale”. See Point-of-Sale terminal. More rental fees.
There was an effort to lower these “but there are other [fees] such as financing, which also applies VAT, [so] the final cost is much higher than just the commission for the operation,” explains Ana Laura Jaruf, from the Department of Economics of the Argentine Chamber of Commerce (CAC).
In addition to these costs, vendors don’t have immediate access to their earnings when consumers pay with a debit or a credit card, contrary to cash. For example, the cost of a product purchased with a debit card will only be credited to the vendor 48 hours later. This delay is much longer when a credit card is used: up to 18 days! This can be a serious liquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More challenge for small shop owners and better justifies their motives behind their pro-cash stance.
Indirectly, cash also directly benefits society through the seignorage paid to the central bank, unlike credit and debit card fees that directly benefit their issuers.
This post is also available in: