Credit card usage down due to new stamp duty

Credit card usage has seen a significant drop since the government introduced a stamp duty from April 2006 with banks also witnessing a 10 to 20 percent decline in the number of new cards.

"We have seen a drop in card holder usage. We are trying our level best to see if we can get this duty removed,” said James Rebert, Chairman of the Card Industry Task Force (CITF).

The CITF is urging the government to remove the stamp duty as customers -- because of the current debit tax structure -- face double taxation. Not only do customers and banks feel the adverse effects of the stamp duty but it has a negative impact on the country's economy, other bankers said.

There are more than 730,000 credit cards in use in Sri Lanka of which some 60% of the credit cards are for a limit of less than Rs.50,000 while about 30% of the cards are for a limit between Rs.50,000 and Rs.150,000. According to banks, roughly 60% of their credit card customers earn wages of Rs.20,000 or less a month. “The stamp duty is adding to the rising cost of living,” one banker said. Rebert, attached to a foreign bank here, said the CITF has approached the Ministry of Finance on this issue but thinks it is unlikely the government would repeal the tax. "They should at least reduce the rate.”

If the government is not in favour of repealing the stamp duty, the banking industry wants a review from the current rate of Rs.10 for every Rs.1000, which is sees as excessive. They want the government to adjust the duty to 0.1% of card spent to be in line with the debit tax currently levied.

Banks are worried that a decrease in credit card usage and an increase in cash transactions could force the government to print more currency, a process that leads to inflation.