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I'm staying in Cabo San Lucas and have noticed that businesses here tend to either be cash-only or provide big discounts when paying in cash. For example a whale-watching company mentions that:

We accept VISA, MC, USD, Mexican Pesos and Euros cash only. We offer a 15% discount when paying for your entire tour in cash.

Same with a diving company:

Payment Methods: VISA, Mastercard, PayPal & AMEX 10% Discount for Cash (USD, MXN, CAD).

Same with a sightseeing company:

You may pay directly on the day of your trip by MasterCard, VISA, travelers' checks or cash (10% discount for cash payments).

Is this because banks charge so much for card transactions in Mexico? Or does this happen because of tax issues? In the US I wouldn't be surprised if a business offered a 1-5% discount for cash, but 10% or 15% would be highly unusual.

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    In Sweden you don't get any discount when paying in cash, even though we have the highest taxes in the world 🤔 Dec 25, 2019 at 13:01
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    I thought paying in cash was as unusual as paying in gold bullion and mackerels by now in Sweden? Dec 25, 2019 at 17:05
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    @Mikael: maybe one of the reasons you can sustain the highest taxes in the world, is efficient detection and prosecution of tax fraud? Dec 26, 2019 at 4:14
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    @phuclv 10% is a big amount (talking for India). Usually, vendors charge around 2.5% extra if paying by card, which is the fees that card providers charge the vendor. Dec 26, 2019 at 5:36
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    @MikaelDúiBolinder. I've heard of a company that charged an extra fee if you wanted a receipt.
    – md2perpe
    Dec 26, 2019 at 20:16

2 Answers 2

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There are a bunch of legit reasons

  • Save Credit Card Service fees (2%-3%)
  • No risk of having to chase or eat a bad payment.
  • Less paperwork

However, I suspect the main reason is the same as in most other places in the world: To put it delicately: Cash allows for "more creative" accounting practices which may or may not be legal and may or may not result in substantially less tax payments.

Even in the US it's not uncommon for a contractor to give you 10% on a full cash payment.

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    @Harper-ReinstateMonica That isn't correct. US taxes are due from many non-US citizens who (for example, and not by way of limitation) live and work in the US. Dec 25, 2019 at 17:31
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    @Harper-ReinstateMonica wat?!? You think the only entity collecting taxes in the world is the IRS?? Rolf
    – user000001
    Dec 25, 2019 at 17:33
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    @Harper-ReinstateMonica your previous comment said that tax evasion was unlikely, not that you don't care about it.
    – user000001
    Dec 25, 2019 at 17:53
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    @Harper "The IRS doesn't tax foreigners unless they are US citizens" - Huh? Surely somebody foreign to the US (a foreigner) is not a US citizen, and likewise a US citizen is not a foreigner? Dec 26, 2019 at 0:10
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    The US also doesn't prosecute muggings that occur in Mexico, but it doesn't necessarily follow that I should accept a 10% discount on a whale-watching tour on the understanding that by doing so I facilitate a mugging. It's up to the questioner whether or not it's a big bag of Not His Business whether he involves himself in local petty crime while on holiday (and I guess whether he considers the tax-avoider or the state to be the mugger in that transaction). But, at least the risk of charge-back or whatever on credit cards gives us plausible grounds to assume it's not necessarily criminality. Dec 26, 2019 at 4:18
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Please note: when you pay for some service/goods a certain amount X, the profit (so the money that actually stay in the pocket of service/goods provider) is on the order of 8-10% at best. This X includes VAT that the shop must transfer to the Government. After taxes, let's assume the net profit will be ~5%.

The credit card fees are calculated on X (even on VAT!), not on the profit. If credit cards ask fees on the order of 1-3%, it means that they are taking something between 20% to 50% of the net profit.

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  • Okay, so lets say the dive shop charges me $100/dive, of which $95 is their expense, $3 is taken by the credit card company and $2 is profits. Why would they offer a $10 discount for paying cash rather than a $3 discount?
    – JonathanReez
    Oct 19, 2021 at 22:41
  • Please breakdown the proposed cost structure of said dive shop then to explain the 10% discount.
    – JonathanReez
    Oct 20, 2021 at 2:27
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    Business in Mexico charges 2200 pesos for something. Unless you're OCD about the exchange rate, you're going to round it to a US$110 dollars in your head. (Or the business will do that, instead of $98) Pay with Visa, card fee is three to five dollars, IVA is almost sixteen dollars, business gets 1780 pesos. Pay ninety dollars cash, business gets the equivalent of 1537 pesos IF he pays the full IVA. But there's no risk of having to fight it if you claim fraud plus he might prefer dollars to pesos.
    – WGroleau
    Oct 20, 2021 at 4:04
  • I know nothing about dive shops or their business model. As far as I am concerned, the business model of the shops you mentioned is that the mexican business prefer to give a 10% discount instead of the 1% US business are giving on cash payment. According to your interpretation, you can always barter a larger discount (14.5% instead of 10%) and make an equivalent donation to the Mexican government. Final note, yes, credit cards usage hamper the creative accountant practices of some businesses, but ... michaelwest.com.au/…
    – EarlGrey
    Oct 20, 2021 at 8:06

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