In its interim report to the government submitted on 24 January 2017, the Chandrababu Naidu panel has made a pitch for banking cash transactions tax for withdrawals in excess of Rs 50,000. The proposed tax has an eerie similarity to the one levied earlier. The Indian government with P Chidambaram at the helm of the finance ministry had introduced 0.1 percent BCCT in 2005 on cash withdrawals of more than Rs 50,000 (individuals) and Rs 1, 00,000 for others in a single day from non-savings bank account maintained with any scheduled bank. This tax was withdrawn with effect from 1 April, 2009 after receiving a lot of flak.
What the panel has in mind it seems is a tax wider in its sweep subsuming all withdrawals including from savings account in order to discourage cash and encourage digital payments. Indians are past masters in the game of splitting and splintering. A person wanting to withdraw say Rs 60,000 would do so in a period spanning two days to duck the tax or may use more than one card of different banks to achieve the same purpose in a single day itself. Larger families would resort to withdrawals from as many bank accounts as possible of various members in the course of the same day. Compulsive cash spenders may simply start boycotting banks and atavistically regress back into the old habit of dealing in cash thus rendering the move counterproductive.
The panel is, however, right about just everything else it has touched or adumbrated upon though there could be operational difficulties. Refund of tax to those making digital payments is a good suggestion, but as they say the devil is in the details. Will it be in proportion to the quantum of digital transactions done vis-à-vis one’s income or will it be just a percentage of the digital transactions done? The former would be more equitable. Insurance of digital transactions is what the doctor has ordered for fostering confidence in digital payments. The panel is on dot on this.
All government sections like insurance, educational institutes, fertilisers, PDS, petroleum, etc to switch to digital payments (sic). This strikes as odd and disjointed. Does the panel want fuel at petrol bunks to be bought only through cards? That would deprive a large segment of populace at the lower end of its fuel requirements. In fertilizer depots cash would have to be accepted because the buyers by and large would be small farmers with no bank account or cut off from banking services. Ditto for educational institutions.
A subsidy of up to Rs 1000 to be provided for smart phones for non-income tax assesses. Once again a slippery surface to skate on. Who will ensure the subsidy is not misused? Will there be a cumulative check kept so that no non-taxpayer buys more than one such Smartphone on government subsidy? What if an affluent taxpayer rides piggyback on a non-taxpayer? As against this the suggestion to provide 50% subsidy for Aadhaar Pay, Biometric (FP & Iris) sensors at all merchant points is workable as it is across the board.
Merchant Discount Rate (MDR) charged by banks for card payments has been a sore point always, and the panel has recommended its scrapping. While consumers would welcome this move, someone will have to bear the expenses. Pray who will? Would the Visa/MasterCard/rupay charges be paid by the government from its consolidated fund? And more importantly will the shopkeeper’s bank and the shopper’s bank take the hit in their stride philosophically just to encourage digital payments. It is one thing for banks like SBI to encourage installation of swipe machines at points of sale (POS) but quite another to foot the related charges.
Some of the recommendations might perhaps be incorporated in the upcoming budget on 1, February 2017. Jaitley can be counted upon to tweak them suitably to make them workable on the ground.