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Discount for cash payments? Not to evade VAT

Categories : Cash is efficient, Costs of cash versus costs of electronic payment instruments
January 9, 2018
Tags : Argentina, Card payments, Cost of transactions, Costs of payments, Credit card, Latin America, Transaction
When a shop owner offers a discount for cash payments, he or she might simply be motivated by a desire to ensure full earnings and to keep liquidity in check.
Communication Team / Equipo de Comunicación

This post is also available in: Spanish

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 cash 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 POS 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 liquidity 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: Spanish