What is cashback and does it be provided by tax?

Картинки по запросу cashback taxIn Uzbekistan, many organizations in the field of trade and services provide their discounts, bonuses and discount cards, which are the most effective ways to attract customers. In fact, all these are ways to keep consumers and encourage customers to re-purchase and use the services of the organization, store or service point as long as possible. From a psychological point of view, each consumer continues to participate in the loyalty program because he understands that he saves some of the total amount of goods or services he or she purchases, and that he or she can receive new products or services at the expense of this saving in the future with a discount or for free.

Great attention is paid to the concept of customer loyalty in marketing. Because a loyal buyer will make purchases in a place where he is used, although he understands that some product is cheaper elsewhere. This is affected not only by discount cards or discounts, but also by personal attention to the consumer. The buyer feels that the store thanks him after every perfect purchase. In fact, this is one of the most popular forms of struggle for customers in the market and its retention.

One way to attract and retain customers, which is becoming more and more popular every day is cashback. Let’s see, what is Cashback?

Cashback is a special bonus program used to attract and increase customer loyalty, primarily in online trading, banking services and gambling.

In developed countries, Cashback services are mainly used on credit cards of the bank and large Internet sales. A customer who participates in the Cashback loyalty program will be able to get back a certain amount of money (usually from 1% to 15%) when buying several products from certain suppliers or throughout the partner network of organizations.

Cashback differs significantly from traditional discounts and discount programs:

    1.The buyer pays the seller the full cost of the retail price of the product (other discounts or bonus programs may be applied);
    2.
The customer receives a part of the purchase price back (as a percentage of the total amount indicated in the Cashback program) not from the seller, but from the affiliated person (service organization), which in turn helps the seller to attract buyers (for example, any of the banks, or a large Internet site, the marketplace);
    3.
The source of Cashback is the commission fee paid by the seller to each affiliated person. Further, Affiliates-Site owners, marketplacers, banks that receive the specified fee from the seller, will share it with buyers and eventually will be able to encourage the purchase of goods and services offered on their portals.

Typically, the amount of money returned through the cashback service is returned to the buyer in cash, and he can spend it at his discretion. In traditional bonus cards and discounts, the buyer will be able to buy goods and services offered only by this seller in the future. For example, customers of supermarkets or hypermarkets (for example, Makro or Korzinka networks), with a large trading network, can use funds transferred to their accumulation cards only when making future purchases on the network, but can not receive cash bonuses.

Until now, taxpayers had no problems with the opportunities offered by discount cards and discount programs in Uzbekistan. Because the savings through the provision of discounts or certain balls on the discount card are not returned to the buyer’s payment plastic card or not issued in cash. However, with the Cashback program, the return of cash in cash is recognized as the monetary income of individuals or additional income.

In fact, wages, property material incomes and other income (the Tax Code, Article 171) are taxed on the income of individuals in accordance with the tax legislation of Uzbekistan. Cash receipts through Cashback are not in their pure form incomes in the form of wages, nor are they property gains and do not correspond to other kinds of income provided for by law.

Only one of the types of income mentioned in Article 177 of the Tax Code “Income in the form of material benefit” can be applied when obtaining Cashback. However, Cashback is not an additional person’s income, but the amount of money that he managed to save. For the money spent in the store for which a subsequent cashback occurred, a person already pays income tax (funds for plastic cards in Uzbekistan in the form of wages are credited only after paying corporate income tax by legal entities). Thus, the buyer will have to re-pay the income tax at the maximum rate from the amount received through the Cashback program. And this is called double taxation. In Uzbekistan, personal income tax is calculated and paid to the budget by employers, while the employer acts as a tax agent. Therefore, in many cases, people do not know how much and in what cases they have to pay taxes. In addition, employers are responsible for incorrect calculation of income tax and / or incorrect calculation of tax benefits for taxpayers for individuals.

The current situation creates a number of problems in the activities of several organizations that provide Cashback services. The reason for this is that organizations paying Cashback to plastic cards are required to pay the maximum amount of income tax on behalf of individuals from the amount of Cashback due to the customer, requesting a taxpayer identification number and to transfer the remaining amount after paying income tax on a plastic card. The organizations are compelled to fix the conditions for withholding the income tax with the help of a separate contract (application), which ensures the procedure of paying Cashback in accordance with the current legislation.

In particular, at present, Uzbek banks stipulate that funds for Cashback cards offered by Hi-Tech Bank, international Visa cards from Ravnaqbank and cards with Cashback services from Kapitalbank will be returned to the card only after payment of the maximum income tax rate from the client ( 22.5%) at the moment. As a result, only 77.5% of the amount due to the client under the Cashback program is returned to the client’s plastic card.

Extract from the public offer of cashback service for Visa card Ravnak Bank

Extract from the public offer of cashback cards AKB Kapitalbank

This situation creates inconvenience for both the commercial bank and the client. Because, in fact, if the client submits an income declaration at the end of the year, in which he indicates overpaid income tax on the amount of all income received from wages and other enrollments, it may turn out that some of the funds will be subject to return by the tax authorities. Generally speaking, in most foreign countries that have more experience than we in this area, Cashback is not considered an additional income.

In the UK, Cashback is considered a discount and is not subject to taxation. In Russia there is also no profit tax for Cashback operations. In the US, Cashback or a discount provided by a local manufacturer or dealer is also not taxed. (Interesting fact: In the US, the proceeds from bribery or illegal activities can be declared and taxed (Taxable and Non-Taxable Income., 29-32 pp.) ). In South Korea, Cashback on credit cards is not included in the taxable base.

However, according to the cards issued by Ukrainian banks Cashback, it is assumed that in a number of certain cases, the income tax can be deducted from the amount due to the client. In Belarus, a taxpayer does not bear tax burden when the amount of Cashback does not exceed 2%, but pays income tax for amounts above.

Now let’s turn your attention to an interesting situation. In Uzbekistan, many now buy products from farmers or commodity markets or buy goods in stores located near their homes. At the same time, we see that the same product is sold in different markets at different prices. As a result, in the market, the same products sold an average of 100 thousand soums can be bought for 90 thousand soums, or you can get a significant discount from your regular seller. In fact, by purchasing goods for 90 thousand soums, we can save 10 thousand soums, we can say that saving, we ourselves paid Cashback of 10%. Now there is a natural question, how accurate is the application of taxation on savings?

Taking into account the above arguments, we should not consider Cashback as an additional income and review its tax practice. We believe that the Tax Code needs to be amended, including the question of excluding income from customers from cashback operations from the income tax base.

We hope that in connection with this, representatives of the Legislative Chamber of the Oliy Majlis of the Republic of Uzbekistan, the State Tax Committee and the Ministry of Finance of the Republic of Uzbekistan will take these issues into consideration.

Based on the realities of the current legislation, so that consumers do not have problems with the timely declaration of income, we recommend:

   1.

Without fear of using its own loyalty programs for hypermarkets and supermarkets, stores in which accumulated balls are exchanged for goods or discounts in this store;
    2.
Without fear of using bonus programs from various providers of Internet services or cellular services in the form of bonus minutes, sms or megabytes (for example, beep charging from Beeline or cashback from Sarkor Telecom when paying through BeePul payment system for payment of SarkorTelecom services)
    3.
Without fear of using Cashback programs from banks that pay income tax for you at the maximum rate;
    4.
Temporarily refrain from receiving Cashback on electronic wallets or plastic cards in cash from various mobile applications that do not withhold tax and do not pay it for the consumer.

 
Mansur Tangishov, financier expert

Sergey Gimadiev, expert in fintech

 

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