Government Panel Bats For Tax On High-Value Cash Transactions, Digital Currency
The committee felt that people aren’t using digital because of a lack of incentives.
A nominal charge may now be imposed on high value cash transactions if the recommendations made by a committee led by former finance secretary, Ratan Watal, is accepted by the government. The 11-member panel had been entrusted with making recommendations on how to incentivise digital payments.
It has suggested that payments made to various government departments could be a good starting point for imposing such charges.
The Committee recommends that cash transaction should be disincentivised by imposing nominal charges after a certain limit. Additionally, the Committee suggests that consumer payments to government department/utilities can be a good starting point for such handling charges.Recommendations Made By The Committee On Digital Payments
The Committee’s report was made public on Tuesday after it was submitted to Finance Minister Arun Jaitley earlier this month. The other recommendations include lowering the cost of point of sale machines and the merchant discount rate to disincentivise cash-based transactions.
Boosting Digital Transactions
The Committee has also recommended that the government bear the cost of digital transactions between itself and citizens, in order to further incentivise digital payments.
The Committee recommends that when government acts as a merchant, it should bear the cost of electronic payments and not pass them on to consumers (eg. merchant fees on card payments or mobile payments like UPI).Recommendations Made By The Committee On Digital Payments
It suggested that the government negotiate the electronic transaction charges with banks and card schemes rather than “imposing regulations on the market”.
It also took up the issue of merchant discount rate or the transaction cost charged to merchants by card payments infrastructure providers and observed that it has not been high enough to incentivise more proliferation of point-of-sale terminals in the country.
“The Committee is of the view that a market driven MDR is an important element in the business of card infrastructure, including setting up and running the terminals. Capping the MDR reduces this incentive,” the Committee observed.
It said MDR should not be further rationalised and left to be determined by market forces.
The 11-member panel also pushes for minimal regulatory intervention and focus upon removal of entry barriers, and ensuring greater competition in the markets.
The Committee therefore recommends that the setting of MDR should be market driven.Recommendations Made By The Committee On Digital Payments
A Bitcoin Like Currency?
In other recommendations, the committee deliberated upon the feasibility of a digital currency issued by the central bank and batted in favour of it. It observed that a significant benefit of such a currency would be the “extreme” difficulty in counterfeiting.
“The Committee notes that several benefits of digital currency, including the instantaneous settlement of transactions, reduction of costs of cash, ability to provide a more comprehensive and unified source...The most significant benefit however, is that the technology makes it extremely difficult to counterfeit, and more importantly enables the central bank to detect the existence of counterfeit currency on a real-time basis,” read the report.