The European Central Bank has gone on record as saying that Malta is the “cash capital of Europe.” By this it means that more transactions are effected using cash than using other methods of payment. Economists think this is a sign of rampant tax evasion, but how correct is this statement?
Last year, the European Central Bank (ECB) published a report showing how people handle cash in the Eurozone. Maltese newspapers were quick to report on how high the use of cash is in Malta.
This caught my eye.
The report states that 92% of point-of-sale (POS) transactions in Malta are cash transactions. This does sound high. But tax evasion can’t be the only reason for that.
Or is it?
I – The ECB report
I took a closer look at the ECB report to see what it said. Here’s a graph taken from the report. It shows the percentage of cash transactions, as a percentage of the total number of transactions for that country.
As you can see, Malta is top of the list with 92%. The Times of Malta article points out that the highest numbers come from Mediterranean countries. This suggests there is a cultural issue at play. They evade tax in the Med, the gist of the article goes, and the numbers here prove this.
We use cash in Malta because of the rampant tax evasion there is.
I’ve lived in four countries so far, including Malta. In each country, I’ve been in situations were someone insisted on cash. And in each case the unwritten point was, “Because I won’t declare this transaction or pay tax on it.” I’m not going to suggest this only happens in the Mediterranean because that would not be true.
Of course, when living outside Malta I was a lot more careful with things so I saw this less. I made it a point to use collect receipts and invoices and so on. Partially this was because when I was new to a country, I preferred to err on the side of caution. But this was also because I didn’t have a social network in place yet. I couldn’t ask friends for the number of, say, that plasterer they were talking about.
But is it true that people in Mediterranean countries are more aggressive at evading tax? It’s a blanket statement that sounds like a stereotype, doesn’t it?
II – Tax evasion
I continued reading the report.
The authors take great care to highlight the information they have is the result of surveys they carried out. The authors explain the distinction between what they call ‘person to person’ payments (which includes payments for, say, babysitting services, gifts, etc.) and payments made in shops. The latter are grouped under the heading of Point of Sale (POS) payments.
The numbers shown in the chart above show POS payments only.
I can’t speak for people who answered the survey but if I hired a plasterer to do some work at home, I would classify that as a person-to-person payment. Which means the chart above talks about transactions that happen in shops alone.
The chart, and numbers, refer to in-shop transactions alone.
This does not mean that the Times of Malta’s conclusion is incorrect. It is possible to conduct transactions in shops and to hide those transactions from the taxman. But, I would argue, it becomes less likely.
So, is there any other reason for a higher number of cash transactions in Malta?
III – Other countries
I speak from experience when I say this.
I currently live in Czechia. Here card usage is high (I don’t have numbers to hand, but based on experience many people use cards most of the time.) The main advantage of using e-payments in Czechia is the use of RFID technology for contactless payments. The speed of a transaction using a contactless card is even faster than handing over a random bank-note and getting change back.
Malta is moving to more and more contactless payments, fuelled by the coronavirus pandemic.
This is an important point.
The ECB report’s executive summary actually states that speed is an issue for customers.The authors note they expect the numbers for cash vs card transactions to change once this technology is available.
Personally, I find this to be true. I use cards almost all the time and only withdraw a modest amount of cash about once a month. There are few places where I cannot use cards, so why run around with money in my pocket?
When I lived in Belgium I used cards a lot too. There was no contactless technology in those days but card terminals could be found almost everywhere. The only limitation was the transaction value. In Belgium, shop owners would refuse cards for anything less than EUR 10.00, arguing the charges are too high to make sense. I’ve never heard anyone say that to me in Czechia. I’ve even paid for items with a value less than EUR 1.00 by card.
I’ve even paid for items with a value less than EUR 1.00 by card.
So is it just that Malta lags behind other countries from a technological point of view?
IV – Technological change
There could be a grain of truth in this. Last September, Malta’s Communications Authority published an update to their 2014-2020 eCommerce National Strategy. They note the need to understand how to reduce payment gateway costs. This includes, perhaps, providing retailers with incentives to accept contactless payments.
Clearly it’s not just my impression that people have a preference to accept, and therefore use, cash instead of cards.
So why did the Times of Malta report on cash usage under the banner of “tax evasion”?
V – CONCLUSION
My opinion is that the economists the Times interviewed hadn’t read the report carefully. That, coupled with that Mediterranean stereotype was easily spun into a story.
As someone who is Mediterranean, I dislike this stereotype. I’m not saying we’re all law-abiding and tax-paying citizens.
But I do object to being grouped like this unnecessarily.
Don’t just accept all that you read in the papers. Dig deeper.
Do you think this stereotype is unfair or correct? Leave a comment below with your opinion.
- The use of cash by households in the euro area; Esselink, H. and Hernández, L.; European Central Bank; 2017-11
- Malta is cash capital, says European Central Bank; Camilleri, I.; The Times of Malta; 2017-11-28
- “Section 4 – Cash usage in the euro area”; The use of cash by households in the euro area; Esselink, H. and Hernández, L.; European Central Bank; 2017-11
- Mid-term Strategy Update; Malta Communications Authority; 2017-09-11
- eCommerce Malta National Strategy 2014-2020; Malta Communications Authority; 2014
- “Focus Area 5 – Payment processing costs”; Mid-term Strategy Update; Malta Communications Authority; 2017-09-11
All references were valid and correct when this article was published. Changes to referenced websites or web pages may render some references invalid. If this is the case, please leave a comment below.