Asobancaria warns that the draft decree that taxes digital payments buries important initiatives such as Bre-B

The Association of Banking and Financial Entities of Colombia (Asobancaria) expressed its concern about the draft decree of the National Government that proposes to apply withholding at the source on income tax and VAT on all transactions carried out by electronic means in businesses.

Currently, this retention only applies to payments with credit or debit cards, but the new project would extend the charge to platforms such as Bre-B, Nequi or Daviplata.

Risk of setback in financial digitalization

Asobancaria warned that the measure “forgets that cash has no retention of any kind”which could lead to Colombians continuing to prefer using physical money. According to the union, this situation “would increase informality and end up generating an effect opposite to what was intended, since businesses could avoid digital payments to avoid assuming new costs.”

The union pointed out that the 1.5% withholding on digital payments “goes contrary to all the work that the financial system has done to reduce the overuse of cash.”increase digitalization and promote financial and credit inclusion.”

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Impact on the immediate payment system

Asobancaria also warned about the impact that the measure would have on the new immediate payment system, Bre-Bpromoted by the Bank of the Republic and financial entities. According to the union, this system “is the country’s big bet to reduce the use of cash,” and a measure like the proposal “would directly affect its adoption and the interoperability efforts built in recent years.”

The association called on the Government to “not to lose the progress made in the last decade” in terms of digitalization and economic formalization.

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The director of Fedesarrollo, Luis Fernando Mejía, also questioned the Government’s proposal to apply a 1.5 percent withholding to digital transactions. According to Mejía, this measure goes against financial inclusion and efforts to formalize the economy, since it would make operations more expensive for households and small businesses and could encourage a return to the use of cash.

The former Minister of Finance, José Manuel Restrepo, joined the criticism, who also warned that the measure could discourage the use of electronic means of payment, just when the country is trying to strengthen digital systems and move towards a more modern economy.

The reactions occurred after the publication of the draft decree of the Ministry of Financewhich seeks to equalize the withholding at source of 1.5 percent between payments made with credit or debit cards and those made through electronic means such as transfers, QR codes and digital wallets.