New Delhi, January 24, 2017

The Committee, headed Andhra Pradesh chief minister Chandrababu Naidu, also recommended abolition of merchant discount rate (MDR) to make digital payments cheaper than cash.

Give tax incentive and subsidies to boost digital transactions, but levy a banking cash transaction tax on cash transactions of Rs 50,000 and above, a chief ministers’ committee on digital payment said in its interim report to Prime Minister Narendra Modi on Tuesday.

The Committee, headed Andhra Pradesh chief minister Chandrababu Naidu, also recommended abolition of merchant discount rate (MDR) to make digital payments cheaper than cash. The panel also suggested that there should be no retrospective taxation on merchants doing digital transactions.

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 today to encourage digital payments.

The ‘Merchant Discount Rate’ is charged to a merchant by a bank for providing debit and credit card services.     The committee comprising Maharashtra Chief Minister Devendra Fadnavis and Madhya Pradesh Chief Minister Shivraj Singh Chouhan has also asked the Centre to promote Aadhaar Enabled Payment System (AEPS) by incentivising and not charging MDR.

The other recommendations include tax incentives for micro ATMs, biometric sensors etc. and tax refund for consumers using digital payment up to a certain proportion of annual income.

When asked how sure he was about incorporation of these recommendations in the forthcoming budget on February 1, 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.

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 made a case for relief in prospective taxes for encouraging merchants to accept digital payments and no retrospective taxation to Merchants doing digital transactions.

It also suggested that for Aadhaar Pay, Biometric (FP & Iris) sensors should be provided at 50 per cent subsidy to all merchant points.

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.

Naidu also suggested insurance for all digital transactions to safeguard the interest of people going cashless.

Key recommendations of the panel

  • Tax incentives be extended to micro ATMs, Biometric Sensors to encourage domestic production
  • Tax refund for consumers using digital payment upto a certain proportion of annual income
  • For Aadhaar Pay, Biometric (FP & Iris) sensors to be provided at 50% subsidy to all merchant points
  • A subsidy of up to Rs 1000 be provided for smart phones for non-income tax assesses
  • Aadhaar to be made primary ID for KYC
  • All government sections like insurance, educational institutes, fertilisers, PDS, Petroleum etc to switch to digital payments

[The Financial Express]