Stop discriminating against digital money - IDESA

Report Nº: 102329/06/2023

Stop discriminating against digital money

The use of digital money is growing exponentially. This is an opportunity to reduce the high level of tax evasion and, in this way, contribute to the reduction of the fiscal deficit. To this end, it is essential to stop discriminating against digital money with tax surcharges.

The use of new technologies accompanied by regulatory changes has been producing a revolution in the means of payment. Thanks to virtual wallets, practically 100% of the population is now able to make all its payments digitally. Similarly, all businesses –even small ones– accept digital payments or are apt to do it. Digital payments penetration reaches even sectors that operate fully informally.

According to the Central Bank, between 2019 and 2022 the number of transactions with electronic payments per person doubled. It went from 68 to 138 transactions per year per person. Although there is no precise information on the use of cash, there are clues that it may be decreasing. For example, according to the Central Bank, the number of cash withdrawals per person per month fell between 2019 and 2022 from 3.7 to 3.3. Similarly, the quantity of banknotes and coins (cash) held by the public, measured in real terms, fell in the same period by 50%.

This massive adoption of digital money opens an opportunity to reduce tax evasion. In this regard, it should be noted that according to the OECD and the Ministry of Economy of Argentina, it is observed that:

  • In Chile, the VAT rate is 19% and VAT collection is 8.3% of GDP.
  • In Argentina, the VAT rate is 21% and revenue is 7.1% of GDP.
  • This implies that, with Argentina’s current VAT rate, it could be possible to collect 9% of GDP if tax collection is done at Chile’s efficiency.  

These data show that there is ample space for improving public finances by reducing tax evasion. To take advantage of this opportunity, it is essential to unify taxes towards a simpler and more rational tax system and improve the efficiency of tax administration. In the latter, a key role is played by digital money, which, unlike cash, leaves a record of all transactions. This, used intelligently, is a powerful tool to reduce tax evasion. 

A recent study ( presents a simulation of the impact on tax collection that digitalization of payments would have in the next 5 years. With very conservative assumptions, the collection of the main national taxes would grow in the order of 2% of GDP. If the main provincial tax (sale tax) is added, the increase would reach 2.3% of GDP. If the expansion of digital money accelerates, the impacts could be greater and faster. Therefore, notwithstanding the strategic importance of public expenditure reorganization, the potential of tax unification together with the massive use of digital payment could make a great contribution to alleviating the fiscal problem. 

To fully replace cash with digital money incentives must be reversed. The use of digital money should not be taxed at all. What should be taxed are cash withdrawals. When a shop receives a payment with a card or virtual wallet, no tax (sale tax, VAT, check tax, etc.) should be withheld. The check tax should be applied to cash withdrawals in banks at a higher rate (with a minimum amount not taxed per person per month). In parallel, the tax agency should use the information provided by digital money in a smart way to reduce evasion.  

The current tax practice, both at the national and provincial levels, is perverse. It punishes the use of digital money by withholding taxes and frees the use of cash from taxes. The logic should be the other way around: tax-free the use of digital money and heavily tax the use of cash. With the information provided by digital money, tax administration could be done more efficiently and taxpayer-friendly. 


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