Is an annual tax on credit and debit cards the most stupid tax in the world?

With tomorrow heralding a new budget here in Ireland, there is certainly time to reflect on the choices made at government level with regards to payment taxation.

In Ireland, the practice of imposing stamp duties –a tax on cards -is still alive and well.  This tax is charged by the government on credit and debit cards issued by the financial institutions in Ireland.  In reality financial institutions are actually levying the charge: they chose to pass it on to consumers. 

I’m struggling to understand why this tax still persists.

Whilst the rules can vary from card to card, there are standard charges levied for each customer.  For credit cards, stamp duty is payable annually at a rate of €30 on every credit card.  With regards to Debit and ATM cards, it is payable annually at a rate of €5.  For credit cards, the duty is applied to each account whereas for debit cards it is €2.50 where cards have been used at ATMs only, €2.50 where cards have been used at Point of Sale only and €5 is paid where cards have been used in both instances.

This €30 levy on credit cards represents a significant barrier to competition in the Irish credit card market.  This practice contributes to stagnation of switching in this marketplace - customers are reluctant to shell out another €30 to acquire a second credit card within a given year.

In total this tax amounts to approximately €107m for the Exchequer, not one of the more significant revenue streams.  The government claims to be fostering a modern, efficient payment system for the people of Ireland.  As part of this, they actively encourage people to use electronic forms of payment yet the continued existence of stamp duty is in direct contradiction.  This tax effectively penalizes the consumer for doing so! 

The National Payments Plan (NPP) completely fudges the matter.  Using obtuse language it advocates that stamp duty should be reformed “to ensure that more effective, efficient e-Payments such as debit cards are not discouraged” concluding that current stamp duty on debit and pre-paid cards should be “phased out.”  However there is no deadline date, and therefore no commitment to this definitely happening anytime soon. 

At this stage the NPP should clearly and explicitly call for the elimination of stamp duty.  It doesn’t make any sense – overall it discourages people from using e-payments, raises only a small amount of money for the Exchequer and above all else really annoys consumers and is anti-competitive! 

It’s well past time that these taxes are immediately abolished.

Sources:

http://www.finfacts.ie/irishfinancenews/article_102633.shtml and the National Payments Plan (NPP) 2013