Uruguay Cuts Two Points From VAT on Debt Card Purchases

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By David Haskel

Uruguay has lowered value-added tax by 2 percentage points, to 18 percent, for all debit-card and electronic-money purchases, taking it to its lowest point in nearly four decades.

The move, effective Jan. 1, will translate into a $50 million saving for taxpayers, Economy and Finance Minister Danilo Astori said.

In remarks to the local Radio Carve posted Jan. 2 on the presidential website, Astori said the whole population would benefit from the move, as authorities have taken steps to ensure that even the poorer sectors of the population have access to debit cards and electronic-money services.

Under Uruguay’s Financial Inclusion Act enacted in 2014 and its implementing regulations issued in 2015, all workers and pensioners have the right to pick a bank account or electronic payment instrument free of charge.

According to the Economy Ministry, this system has lead debit card purchases to rise tenfold and the number of retailers accepting them to triple.

Astori compared the two-point cut with a decision made in June to raise income tax rates on richest workers, boosting the maximum rate by 6 percentage points.

Country a Former Tax Haven

In remarks to Radio El Espectador also posted on the presidential website, Astori said the income tax increase would affect the richest 10 percent of the population, while the VAT reduction would benefit everyone.

VAT was 22 percent in 2015, when President Tabare Vazquez took office, and was later cut to 20 percent before being cut again on Jan. 1.

A government official told Radio Uruguay the latest move is expected to help further boost the use of debit card and electronic payments, and to modernize the country’s tax system.

The tiny South American nation wedged between regional giants Brazil and Argentina over the years ran a regional offshore banking system based on banking secrecy laws similar to those in Switzerland. This state of affairs got it into trouble with the Organization for Economic Cooperation and Development, which in 2009 briefly blacklisted it as a tax haven.

Since then, the government has made a series of changes to boost transparency and compliance, earning it a promotion to Phase 2 of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes’ peer review process.

To contact the reporter on this story: David Haskel in Buenos Aires at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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