The reduction of Value Added Tax (VAT) on debit card purchases Uruguay returned to the center of debate after the president Luis Lacalle Pou announced the tax reductions in the Personal Income Tax (IRPF) and to Social Security Assistance Tax (IASS) during his speech Accountability last week.
The application of VAT to debit card purchases is a relatively recurring topic on the government’s agenda and, in almost the 9 years it has been in existence, it has undergone various adjustments. The most recent was in March 2020, just after the start of the management of Lacalle Pou —and on the verge of the Covid-19 pandemic—, when the complex tax situation of the country led to an increase in VAT for debit cards, causing the discount to go from 4% to 2%.
So the argument of Ministry of Economy and Finance (MEF) was that the reduction instrument had been implemented to encourage the use of the debit card and that, given the evident expansion of this payment method, it was no longer necessary to continue having the incentive.
However, said instrument had already had several previous modifications: in 2014, during the first year of implementation of the law, the benefit was four points, while in 2015 it went to three and in 2016 it dropped to two points. In January 2017, the 4% discount was reintroduced, together with the increase in rates in the upper income brackets.
The president’s defense and official figures
This week, Lacalle Pou returned to defend the reduction of the discount that his government implemented in the first days of his administration, in 2020. For the president, who for the first time used figures publicly to discuss the issue, debit cards are used mostly by “upper” and “upper” class peopleso the benefit, consequently, seems to point to sectors that do not need it.
“When you look at food, cleaning products, do you know how much the lowest quintile uses it? 3.81%, or 4%. If we are talking about justice, of those who have the least, I can assure you that this 2%, the one who used it, were the people who had the most, ”she stated in an interview with Underlined regarding the VAT discount percentage.
The president’s argument was based on a document prepared by the Tax Advice of the MEF that addresses different aspects of the so-called “tax relief” known last week, among which the termination of the 2% VAT refund in 2020 stands out, understanding it as the end of a subsidy before the tax increase.
The document also affirms what Lacalle Pou mentioned during his interview: that the benefit is concentrated in the highest quintileswhile the penetration of the debit card as a means of payment is not very deep in the population with lower income levels.
These data come from the last Household Financial Survey of the Central Bank of Uruguay (BCU)which indicates that in “households belonging to the first income quintile, only 39% have a debit, prepaid or electronic money card.”
Regarding the majority use of the debit card for daily purchases, such as food, cleaning and toiletries, clothing, footwear, in the first quintile of income it is used by 4.81% of the households surveyed by the survey, in the second quintile 9.41% and in the third quintile 15.89%, indicates the MEF report prepared from BCU data. On the other hand, in the fourth quintile the majority use is 22.54% and in the highest quintile it is 36.76%.
When considering the majority use of the debit card for monthly payments such as water, electricity, telecommunications, health and education, in the first quintile it is 3.15% and in the second quintile 8.96%. In the next three quintiles, the percentages of use are 14.63%, 21.42% and 27.59%, according to the document. “This benefit is clearly taken advantage of by the highest income quintiles,” he concludes.
Source: Ambito
