VAT-free days accelerate Colombian e-commerce

To boost the economy during a challenging year, Colombia’s government suspended VAT for one day in June, July, and November 2020. Based on over 2 million transactions across our platform in Colombia, PayU has analyzed the impact.

2020 has been a challenging year for businesses.  With lockdowns and economic uncertainty weighing on buyers, governments around the world have had to get creative when it comes to sustaining the economy during the coronavirus pandemic.

 

Colombia’s government has sought to help retail businesses get through the crisis by encouraging consumers to open their wallets.  On June 19th, Colombia held the first of three so-called “VAT-free” days, which allowed people in the country to temporarily buy many key items – such as clothing, electronics, toys, appliances, school supplies, sports equipment, and much more – tax-free.

 

Without the normal Value Added Tax (VAT) of 19 percent which is applied to most retail purchases in Colombia, this effectively meant that for one day, consumers could enjoy almost 20% off across a range of popular items.  The discount applied to purchases made with a credit or debit card up to a maximum of 3 units per item.

 

 

VAT-free goes e-commerce only

Originally announced at the end of 2019, Colombia’s VAT-free days took on a new challenge with the onset of the pandemic in March.  Colombia’s initial quarantine lasted until July 1, meaning that for the first VAT-free day in June, some restrictions had to be lifted.

 

After a rise in coronavirus infections led Bogota’s mayor to refer to the first VAT-free day as “Covid Friday”, the second VAT-free day on July 3rd applied to e-commerce only.

 

We saw a corresponding increase in the number of transactions processed on our payment platform, which rose by more than 40 percent…

 

 

 

 

…with platform sale value increasing by a similar amount:

 

 

VAT-free days Colombia - PayU - Sales in USD
 

 

On November 21, the third VAT-free day took place.  Analyzing the top level data above, we can see that while the number of transactions decreased modestly, sale value increased by an additional 12 percent on Day 3.

 

In total, PayU processed nearly $250 million USD worth of transactions across Colombia’s three VAT-free days, a big increase compared with “normal” transaction levels, which range between $15 and $20 million on a typical day.

Overall results of VAT-free day

A jolt to the economy

The three 2020 VAT-free days have played an important role in supporting Colombia’s economy during a difficult year, but equally interesting is the impact of VAT-free day on the development of e-commerce in Colombia as a whole.

 

Even before the event moved only online, our platform data already showed a massive increase in e-commerce activity for the first VAT-free day.  On Day 1 we recorded more than $60 million USD in total transaction value, more than a 200 percent increase over the average for June:

E-commerce boosts Colombian retail as a whole

In the results of the three VAT-free days, we can also see the meaningful contribution that e-commerce is making to Colombia’s overall economic growth.

 

Data from over 8,000 businesses using our platform shows that the average business generated an additional $30,375 USD in revenue due to e-commerce across all three VAT-free days, at an average sale value of $162 per customer.

 

Not bad for challenging economic times, and an indication of the value that the ongoing development of e-commerce will bring to emerging economies during the COVID-19 recovery.

VAT-free day helps small retail

Although a significant share of sales activity on VAT-free day (both across our platform and in general) took place among larger retailers, we can also see that the three VAT-free days have also had a positive impact on small businesses.

 

2020 has led an unprecedented number of small businesses to improve their online offering, in both emerging markets as well as more established economies.  In the data from Colombia’s VAT-free days we can see the impact of e-commerce for small and medium-sized businesses and the importance of offering a sophisticated online shopping experience no matter how big or small your company may be.

 

Interestingly, although small retail stores generated 12,000 fewer transactions on our platform during the third VAT-free day, sale values rose over 60 percent for a total of $6.3 million USD in e-commerce sales for small retailers.

 

Other types of SMEs performed similarly well.  In total, over the three VAT-free days more than 5,000 SMEs on our platform generated nearly 300,000 transactions worth over $30 million USD.

Summary: A successful initiative powered by Colombia’s emerging e-commerce sector

With hundreds of millions of dollars worth of retail sales across Colombia’s VAT-free days, and a dramatic increase over regular transaction levels, it’s safe to say that the measure has achieved a major part of its intended impact when it comes to supporting overall economic activity.

 

Furthermore it is clear that the success of VAT-free day has been driven largely by online shopping – another reminder of how e-commerce continues to expand rapidly in emerging markets.

 

If you’re interested in digging further into any of the above data, our local team in Colombia has put together a comprehensive report on VAT-free day and its impact across the Colombian economy:

 

Click to read the full report on our LatAm blog

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