Visa Europe rolls out strategy promoting card payments in Romania’s public sector

Visa Europe, the payments technology business, has launched a strategy that aims to increase the usage of card payments in Romania’s public sector, which would shrink the black economy and increase tax revenues.

According to Visa Europe, Romania’s shadow economy is the second biggest in the EU at 28 percent of GDP – amounting close to EUR 40 billion, while the tax collection rate stands at 32.9 percent of GDP, below the EU average of 40 percent.

Catalin Cretu, country manager Visa Europe – Romania, said that Romania is the first country where this project will be implemented, because of the high potential for card payments in the public sector.

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He commented the measures proposed by Visa Europe can represent the building blocks of a national strategy where the card plays a central role. It can be used for paying taxes, distributing welfare benefits, transferring on card expenses made by public employees travelling for work purposes, and granting some fiscal incentives in sectors where evasion is rampant.

The strategy outlines that administration expenses would fall by RON 23 million (EUR 5 million) if 30 percent of the tax revenues would be collected from card payments. In addition, this would lead to a yearly increase of RON 750 million (EUR 173 million) in fresh funds collected at a local level.

The document further states that transferring welfare benefits and other social security payments on cards would save up to RON 400 million (EUR 92 million) in the next years. However, authorities need to enforce special regulation on card payments that would convince banks to expand their network of POS and ATMs in the unbanked rural areas.

“In Romania, a lot is spent on welfare benefits and associated social security services, but the control is limited because the payments are made in cash,” said Cretu.

At present, Romania spends around 10 percent of its GDP for welfare and other social security services, which reach around 12 million individuals or families.

Enforcing card usage for work-related travelling would lead savings of RON 12.6 million (EUR 2.9 million) if such a measure is enforced in the next two to four years.

Boosting card usage should also help Romania enhance the collection of VAT in sectors with a low compliance rate, according to Cretu.

“In sectors where the state doesn’t collect anything in taxes, a discount granted for card payments, would see consumers exert pressure to pay by card,” said Cretu.

The areas in which the taxman collects less than 10 percent of the VAT are in the hotel industry, gambling and betting services, and recreational activities.

Cretu suggested that reducing VAT by 4 percent for card payments in these uncontrolled sectors would lead to an additional collection rate in VAT up to RON 3.3 billion (EUR 762 million).

The measures proposed by Visa Europe would lead to overall savings up to RON 435 million (EUR 100 million) for public authorities and increase revenues by at least RON 4 billion (EUR 924 million).

Ovidiu Posirca