Many already suspected that introducing taxes on financial transactions would prevent poor clients in developing countries to entrust banks and other financial institutions with their often small savings. It was interesting to read in the transcript of a speech by Mercedes Cuellar, the President of Asobancaria, the Colombian banking association, that the “4/1000” (locally pronounced cuatro por mil) in Colombia increased the use of cash in the country from 46 percent to 68 percent.
The tax had been introduced in 1998 after the financial crisis under the government of Andres Pastrana starting with 0.2 percent on all cash-, card-, and check transactions (Ley 633 del 2000). The current government under President Alvaro Uribe increased the tax to 0.4 percent (Ley 1111 del 2006). Today, the tax generates around 2.5 bn COP per year (US$ 1.4m).
When I was in Colombia last year, many of the taxi drivers described the cuatro por mil as the main reason why they did not have a bank account. They did not know that accounts under 7.5m COP (US$ 4,200) were exempted and therefore the tax would not affect them. Also when the Banca de las Oportunidades, the Colombian financial sector policy, worked with many banks to establish banking agent networks, the tax posed problems: The banking agent, a retail outlet processing financial transactions on behalf of banks, would have to pay taxes on funds received for the bank. Here the government was quick in exempting these “internal” funds since they do not represent income for the retail store.
Colombia is not alone in Latinamerica. There are other countries with taxes on financial transactions (ITF = Impuestos de transacciones financieras) including for example Peru, Bolivia, and others. Mexico just introduced a tax on deposits, Brazil is currently thinking about tit, and Venezuela recently stopped charging them. Yes, in many cases small transactions are exempted, but only few people know and trust this exemption and would rather not have a bank account and keep saving and spending in cash.
