The Ministry of Finance has announced the proposal of a 1.5 per cent withholding tax on digital payments, setting off alarms about the future of Bre-B.
Following this announcement, the measure could generate problems for small businesses and merchants in a country where 77.8% of transactions are made in cash.
Bre-B represents an immediate payment system from the Bank of the Republic of Colombia, which was developed in order to allow 24/7 transfers between banks and digital wallets through the use of `keys`, unique codes that can be cell phone numbers, ID cards, or emails. The system is expected to reduce the use of cash and promote financial inclusion. However, its lifespan could be short, as a decree by the Ministry of Finance will apply a withholding tax of 1.5% to all digital payments in stores, including those made by Bre-B, Nequi, PSE, and QR codes. The measure, which seeks to equalise the tax treatment of cards with other means of payment, has set off alarms among businesses and merchants.
More information on the announcement
According to EL PAÍS, the Ministry of Finance argues that this initiative aims to correct a `fiscal asymmetry`, since payments and transactions that are made through credit or debit cards have a withholding tax of 1.5%, and these digital payments do not. With this in mind, the strategy will focus on `recognising a similar treatment between products that offer full transactional traceability`. Furthermore, the decree also specifies that this withholding will not be applied if the transaction does not constitute tax income, and that individuals who are not required to declare this tax or invoice will be exempt. That is, it would not be paid when passing money between family, acquaintances, or friends.
However, the Bank of the Republic showed, with data from 2024, that transactions completed in cash in Colombia reach 77.8%. At the same time, officials from the National Association of Financial Institutions (ANIF) also raised concerns, pointing out that the government's diagnosis is valid, but considers that it has an ‘inconvenient’ approach, as the measure may generate cash problems for merchants, since it forces them to advance resources that do not necessarily correspond to their tax burden.
In addition, the risk also lies in the fact that the use of digital means will be discouraged, and the use of cash will be reinforced. ANIF's proposal is contrary to that of the Government, mentioning that instead of extending withholding tax to more means, it should be reduced for credit cards. The logic of this proposal is that, if the aim is set on the initiative to promote digitalisation and formalisation, those who are in the system should not be penalised.
Asobancaria also expressed its concern, as it warned that the initiative `would have a significant impact on Bre-B, which has been the result of a great effort by the Bank of the Republic and the entities of the financial system.` It also added that the proposal goes against all the work that the financial system has done in order to reduce the overuse of cash, increase digitalisation, and increase the overall financial and credit inclusion.
