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:
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.