My Thoughts on Technology and Jamaica: How Electronic Transactions in Jamaica can eliminate Hidden Economy via Universal Consumption Taxation

Saturday, June 4, 2016

How Electronic Transactions in Jamaica can eliminate Hidden Economy via Universal Consumption Taxation

“Contrary to what many people think, there are costs associated with cash. From direct costs, like production and transportation of bills and coins, to indirect costs such as corruption, social insecurity, financial exclusion, timely state aid payments and tax collection complications. These are all absorbed by the Jamaicans”

MasterCard senior vice-president and general manager for the Caribbean, Gabriel Zuliani commenting on the Dr Friedrich Schneider entitled Evaluating the Social Cost of Cash

Jamaica needs to grow its usage of electronic payments.

So says Dr Friedrich Schneider in a study entitled Evaluating the Social Cost of Cash on the type of transactions in several countries including Jamaica as reported in the article “Cash Is Costly, Says Study By Card Company”, published Wednesday June 1, 2016 by Steven Jackson, The Jamaica Gleaner.

The Mastercard commissioned study was carried out by Dr Friedrich Schneider, Professor of Economics at the Johannes Kepler University of Linz in Austria. The study was conducted in several countries around the world including:

1.      Jamaica
2.      Trinidad and Tobago
3.      Dominican Republic

The study came to the following conclusions:

1.      9 in 10 transactions in Jamaica is done via cash or cheques
2.      1 in 10 transactions in Jamaica is done via electronic transactions

Electronic Transactions mainly refer to:

1.      Debit Cards
2.      Credit Cards
3.      Wire Transfers

So how does Jamaica's use of cash affect economic growth?

Electronic Cash transactions and Jamaica - Tapping into the informal economy of the Unbanked

According to the study, if these countries reduced cash transactions by 30% per cent over four (4) years:

1.      0.7% per annum additional growth in Jamaica
2.      1.1% per annum additional growth in Dominican Republic
3.      3.6% per annum additional growth in Trinidad and Tobago

It was the connection to growth in these countries that caught my eye. According to the Evaluating the Social Cost of Cash, the cost of cash suggest that:

1.      30% of the overall economy is informal i.e. untaxed cash transactions
2.      70% of the overall economy is formal i.e. electronic transactions that pass through a bank

These users of cash, many of whom are unbanked, are potential future customers of Jamaicans banks, to quote Gabriel Zuliani: “The use of cash in Jamaica is super big. So opportunities include credit, debit, prepaid and remittances”.

Clearly with 90% of transaction still done using cash, this represents a huge growth potential for banks and other financial institutions for the introduction of Mobile money as argued in my Geezam blog article entitled “How Quisk Mobile Wallet impressed at inaugural NCB Digital Tech Symposium”, especially as these people may represent the unbanked in Jamaica.

According to research done by University of the West Indies as mentioned in the article “BOJ Developing Agent Banking System To Reach The Unbanked”, published Friday October 11, 2013 by Avia Collinder, Business Reporter, The Jamaica Gleaner

The UWI Research into the Unbanked was conducted by Associate professor, Department of Economics at Texas Christian University Dr Dawn Elliott and a team of statisticians from UWI as mentioned in the article “Jamaica Counting On its Unbanked”, published Friday, September 30, 2011, the Jamaica Observer

The figures are as follows:

1.      34% of persons above 18 years old in Jamaica do not own Bank accounts i.e. Unbanked 
2.      66% of persons above 18 years old in Jamaica own Bank accounts i.e. Banked
3.      12% of Banked have transactional accounts that they use to conduct business i.e. Highly Banked
4.      80% of persons above 18 years old in Jamaica have limited access to a low-cost, efficient and easily accessible payment channels

This study is so important, it was cited twice by State Minister in the Ministry of Science, Technology, Energy and Mining Julian Robinson in a Tuesday May 28th, 2013 Sectoral Debate and later in a Wednesday June 11th, 2014  Sectoral Debate.

So are electronic transactions cheaper than cash transactions?

Cash vs Electronic transactions - Cashless society in Jamaica by the year 2020

Part of the problem is the perception that cash is free when compared to electronic transactions.

It's generally perceived that there is an added cost to businesses to set up POS (Point of Sale) terminals and bank accounts to handle electronic transactions. However, using cash incurs the following costs:

1.      Production of cash
2.      Distribution of cash
3.      Collection of Cash
4.      Security and counterfeit prevention

According to MasterCard senior vice-president and general manager for the Caribbean, Gabriel Zuliani, this unseen cost of using cash affect the society, which are borne by Jamaicans, quote:  “There is the perception that cash doesn't bear any cost. But there is a huge cost for the society. Often times, the consumer doesn't see that cost [of cash] and doesn't carry that cost, but the society feels it”.

The shift towards electronic transactions such as Mobile Money as described in my blog article entitled “How NCB Mobile Money by AIS and Quisk heralds Mobile phone ATM Withdrawals by December 2016”, possibly via legislation for the Government of Jamaica and banks, would benefit Jamaicans. This as by making every transaction electronic, it would not only eliminate the production, distribution and collection costs of cash but also:

1.      Reduce corruption
2.      Make it easier to trace cash transactions
3.      Make money laundering difficult
4.      Uncover hidden incomes within the society
5.      Increased compliance with the IRS and FATCA

Legislation therefore need to be enacted to eliminate cash transactions, with the Government of Jamaica leading the way by making all transactions electronic, possibly even introducing bitcoins as explained in my blog article entitled “Microsoft accepts Bitcoins for Purchases - Napster of Cryptocurrency set to explode in Jamaica in 2015 Year of the Sheep”. 

This could pave the way for a Cashless society in Jamaica by the year 2020

So how can a switch to a Cashless society benefit Jamaica?

The Jamaican Cashless Society - How Universal Consumption Taxation eliminates the Hidden Economy

Electronic transactions could potentially make Jamaica a cashless society. This could be possible by passing legislation making cash accepting or doing cash transactions illegal.

This would eliminate the informal economy and grow the formal economy, to quote Gabriel Zuliani: “A greater financial inclusion and greater use of storage of electronic values and electronic payments are key drivers of economic development and the reduction of indirect costs, such as the informal economy”.

It could potentially open the way to introducing GCT and Income Tax to every Jamaican once they receive remittances, or do transactions via their Credit and Debit Card. This as if transactions are electronic, they can make every transaction traceable; GCT and Income tax would be easier to collect, costing less n terms of paperwork, as it would only be a matter of checking the banks. 

Jamaica, Taxation and Electronic transactions – How Education, Housing, Transportation and Healthcare can be free by 2020

Electronic transactions would eliminate situations where Companies and wealthy individuals use taxation loopholes to dodge paying taxes.

It would also help Jamaica to be compliant with the IRS in terms of catching Americans dodge paying over monies to IRS (Internal Revenue Service) via FATCA (Foreign Account Tax Compliance Act) and spend it on vehicles as described in my blog article entitled “How Increase Motor Vehicle Importation related to Americans dodging FATCA”.

This increased collection of taxation can not only eliminate the need for income tax but the level of taxation generated could potentially be used to do the following:

1.      Free Education up to University level
2.      Free Housing
3.      Free Transportation
4.      Free Healthcare

This is how growth could potentially be achieved. Using electronic transactions, the GOJ could make taxation universal and harder to avoid, eliminating the hidden economy and making social amenities free in Jamaica.

Here's the link:

Evaluating the Social Cost of Cash

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