A Rs 1,000 subsidy for purchase of smartphones by non-tax assesses and small merchants and a cash transaction tax on withdrawals of Rs 50,000 and above in banks have been recommended by a Chief Ministers’ panel on Tuesday to encourage digital payments.
The Committee of Chief Ministers (CMs), formed to prepare the road map for rapid adoption of digital payment methods, on Tuesday, recommended levying a handling charge for cash payments above ₹50,000, while pitching for tax breaks to consumers and merchants using digital modes of payments.
In its interim report submitted to Prime Minister Narendra Modi on Tuesday, the panel convened by Andhra Pradesh CM Chandrababu Naidu, also recommended abolition of the merchant discount rate (MDR) to make digital payments cheaper than cash.
“Bringing down cost of digital transactions is key to success of digital payments. We have recommended levy of banking cash transaction Tax (BCTT) on transactions of ₹50,000 and above to curb use of cash for large transactions,” Mr. Naidu said after submitting the report to the PM.
The committee also recommended relief in prospective taxes for encouraging merchants to accept digital payments and no retrospective taxation to merchants doing digital transactions.
“Consider cap on maximum allowable limit of cash in all types of large ticket size transactions… All government sections like insurance, educational institutes, fertilisers, PDS, Petroleum etc., to switch to digital payments…Lower or Zero MDR for all digital payments to Government entities,” the report said.
Other suggestions to incentivise digital payment included extending tax incentives to micro ATMs, biometric sensors, etc., promoting Aadhaar-Enabled Payment System (AEPS) and not charging MDR.
“For Aadhaar Pay, Biometric (fingerprint and Iris) sensors to be provided at 50% subsidy to all merchant points… Tax refund for consumers using digital payment up to a certain proportion of annual income,” the report stated.
Further, a subsidy of up to ₹1,000 has been proposed on smartphones for non-income tax assesses or small merchants. The committee, which comprises 13 CMs, has proposed that all payment banks and business correspondents be made inter-operable with the use of AEPS.
It also recommends that Aadhaar be made primary ID for KYC. “Section 57 of Aadhaar Act can be applied. Amendment to PMLA Rules required,” the report said.
PTI adds..
When asked how sure he was about incorporation of these recommendations in the forthcoming budget on February 1, Mr. Naidu said, “I am very confident about that.”
Explaining about advantage of digital payments, he said that there are lots of cost of handling physical currency because of its printing, movement and security while there is no such cost for digital currency.
Mr. Naidu also elaborated that with the increase of volume of digital transitions, the cost will reduce and there is huge opportunity in India because non-cash payment transitions by non-banks per capita per annum is 11 in the country as compared to 26 in China, 728 in Singapore, 355 in the UK, 142 in Brazil, 70 in South Africa and 32 in Mexico.
Similarly, the report highlights that the number of (cashless) pay points per million people are 1,080 in India as against 31,096 in Singapore, 30,078 in the UK, 25,241 in Brazil, 7,267 in South Africa, 7,189 in Mexico and 16,602 in China.
The panel said in its interim report that all payment banks and banking correspondents should be made interoperable through AEPS and also provide infrastructure for 1,54,000 post offices by way of interoperable Aadhaar enabled Micro-ATMs.
Mr. Naidu also suggested insurance for all digital transactions to safeguard the interest of people going cashless.
Explaining the constraints being faced by the government to encourage digital transactions, the panel said there is a need to bring about attitudinal change among people to encourage them to go for cashless transitions through training.
The panel has also drawn attention towards other constraints like lack of hardware with merchants like (digital payment) acceptance infrastructure.
It also stressed on the need for improving the Internet connectivity and data infrastructure to boost digital transactions.
Mr. Naidu also spoke about lack of interoperability of various modes of digital payments and cyber security for the purpose.
Besides, Naidu also suggested that there should be a legislation to accommodate digital transactions.
The panel has also asked the Centre to device appropriate digital payment mode for high value transactions and also expressed concerns that digital transactions are costlier than cash ones.
The panel to suggest measures to enable all sections of the population to migrate to the digital payments was constituted on November 30, 2016.
The panel had four meetings and video conferencing.
