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Lithuania set to limit cash payments to 3,000 euros

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Linas Jegelevičius for the BNN

The Farmers and Peasants-led Lithuanian Cabinet has approved a draft bill envisioning restrictions on use of cash, limiting the kind of settlements up to 3,000 euro.

To employ an example, if you pay for your flat rent 300 euro a month, not to breach the law after the adoption, you will be entitled to pay that way only for 10 consecutive months. Having reached the sum, you will have to resort to other, no-cash-involving ways of payment.

According to the bill, the restrictions would be applied not only for natural bodies but legal bodies, too. Until now, the Law on Cash Settlement has put the cash payment ceiling at 5,000 euro, but the government believes it has to be lowered due to several reasons.

First, because of the EU and worldwide trends – cash transactions are on decline in most civilized countries, the bill authors claim. Second, they argue, many European countries have already lowered the limit and Lithuania just cannot fall behind.

For example, amid the economic crunch, Greeks have put the threshold for cash payments at 500 euro, a European low in the regard. Meanwhile, Poles and Croatians, with the limit at 15000 euro, have the highest EU ceiling for cash operations.

Over the last couple of years, the limit of cash payments in Spain was reduced to 2500 euro, in Romania – to 2,600 euro, Italy, France and Portugal – to 1,000.

«The European and worldwide trends are clear – settlements in cash are dwindling as internet transactions replace them. Using cash nowadays is not a sign of modernity,» argued Vilius Šapoka, Lithuania’s Finance minister, introducing the amendments.

According to the ministry, the cash payment restrictions are effective in tackling terrorism and shadow economy.

Yet the ministry was honest and did point out to the drawbacks of the tougher bill. Among them is limited availability of non-cash payments during off days. Besides, online payment services mean certain surcharges to the payer. Many of foreigners especially could end up being in awkward situations provided they do not use internet banking. And finally, not all the service providers offer the possibility of online banking when the sum of purchase exceeds 3,000 euro.

With the draft out, it was the Lithuanian Ministry of Economy that bristled against the proposal of cash payment limitation.

«The question is whether we orient ourselves to the southern European nations that have set very low limits for payments in cash or to our nearest neighbours which are way more liberal in the regard?» Mindaugas Sinkevičius, Lithuania’s Economy minister, asked rhetorically in Lithuanian media.

Some of the Lithuanian parliamentarians have proposed during deliberations of the bill to set the limit at 5,000, 7,000, 10,000 or even 15,000 euro and also introduce differentiation between businessmen and ordinary people, as well as foreigners and business payers.

Lithuania’s Free Market Institute (LFMI) also raised its concerns about the cash limitations, arguing that the measure is «ineffective in fighting shadow economy.»

«There is no substantial evidence for that,» the LFMI claims on its website www.llri.lt«Although the proponents of the tighter bill point out to the good practice of some foreign counties, yet the example of our Estonia shows that scarcer use of cash for payments does not reduce shadow economy. In fact, its level is pretty high and is similar to that in the other Baltic countries.»

The Institute also accentuated that limitations on cash payments do not affect shadow economy at all of both parties of a deal agree voluntarily to use cash for the settlement.

«Of 28 EU member states, only 15 apply limits to payments in cash, whereas 13 do not have them. The statistics do not support the Economy minister’s claim that cash limits can reduce shadow economy. Statistically, it in the countries that do not apply this kind of restrictions is on a lower end,» the LFMI concludes.

The analysis also does not reveal that the introduction of the limitation helps decrease it.

The Institute also emphasised that the restrictions would give banks, including the Central Bank of Lithuania, and edge and furthermore – monopoly in setting banking service charges.

Most of Lithuanian entrepreneurs, like Valentinas Naujanis, head of a second-hand car market in Kaunas, the second-largest Lithuanian city, suggested that limitations on payments in cash would encumber the trade.

«Many of the buyers here are foreigners, some of which do not use online banking. With few bank branches opened during weekend, they will end up in an unfavourable situation,» he is convinced.

Meanwhile, Mindaugas Statulevičius, director of Lithuania’s Real Estate Expansion Association (LREEA), pondered that the proposed bill would do good for the local real estate sector.

«I believe it would bring more transparency to our accommodation lease market, in which shadow transactions, when the tenant pays the landlord in cash, are of humongous proportions,» he said.

However, the situation can be changed only in case if a set of measures tackling it is employed, he stressed.

Among those who voiced their strongest support for the bill amendments are bankers.

«It would definitely be a right step. When it comes to settlements in cash, Lithuania sits on top in the entire European Union – around 87 per cent of all transactions are done in cash. Note, this is so against the backdrop of one of the largest shadow economies in the bloc,» Rokas Grajauskas, chief economist for the Baltics at Danske Bank, underlined. «There’s a strong relation between the two. No doubt about it.»

Echoing, Marius Jurgilas of the Central Bank of Lithuania, notes that, with the cash payments limitations in Greece in place, the country’s fiscal situation did improve significantly.

«The reason for that is this: the Greeks started making payment using their banking cards, which saw more taxes collected throughout the country,» he pointed out.

Both bankers agreed that, although the restriction may be inconvenient for some people or certain groups of people, the population will get used to it eventually – with the state and the people themselves benefiting from it.

The Seimas’ Budget and Finance Committee asked the drafters this week to further work on the amendments’ redaction. It means that the bill adoption is put on hold for now.

Ref: 020/111.111.111.4688


Leave a reply

  1. Zerry says:

    Interesting to think whether it reduces the shadow economy because that kind of economy does not use to play with receipts. This is more for ordinary persons. Statistics and reality are different. For example in Germany the taxi rides mostly need to pay in cash. But it is not automatically a sign of grey economy or so. Everytime I have got a receipt etc. Same in many smaller central European shops. Cash is still definitely the fastest way to pay. 3000 eur/time is reasonable limit but if it’s per year then it is a joke only.

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