On Budget table: New fund, portals to push card payments

The measures, some of which are based on recommendations of a committee headed by former Finance Secretary Ratan Watal, are likely to be announced in the Union Budget 2017-18.

Written by Sunny Verma , Pranav Mukul | New Delhi | Updated: January 18, 2017 9:39 am
budget, annual budget, budget news, union budget, budget 2017, 2017 budget, budget digital transaction, budget cashless economy, demonetisation budget, budget digital transaction measures, india news, budget news The Union Budget for 2017-2018 is likely to see measures promoting digital transaction. (Representational)

Creation of an Acceptance Development Fund (ADF) to encourage wider card payment infrastructure, amendments to government rules to include digital modes of payment alongside other modes of payment, and the development of new portals by tax bodies to collect tax payments digitally are likely to figure in a package aimed at promoting electronic payment modes in the Union Budget for 2017-18.

The ADF, to be mainly driven by market players, will encourage wider deployment of card acceptance infrastructure such as Point of Sale terminals (POS). The government is also considering options to either set up a new payments regulator or to make the current Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) within RBI more independent.

 These measures, some of which are based on recommendations of a committee headed by former Finance Secretary Ratan Watal, are likely to be announced in the Union Budget 2017-18. “We have held discussions with heads of banks to set up the development fund. A number of other steps have been planned to encourage digital transactions,” a government official said.
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The creation of this fund was earlier suggested by the RBI in March 2016 in a consultation paper. It will enable banks to speed up their merchant acquiring activities and increase penetration in existing and new markets. Contributions to the fund should originate from the card issuers, and card payment networks may also be co-investors in the fund. There could be different methods to determine the level of contribution — as a percentage of cardspend or as a percentage of interchange revenue generated when cards are used, the RBI had said. It will work as a financial pool which can be accessed to address some of the economic constraints associated with acquiring/setting up infrastructure to acquire card payments. This helps to reduce the stress on thin margins and also helps in reducing the payback period of investment for acquirers.

ADFs have been used successfully in some countries like Poland and Indonesia where the card payments ecosystem has seen a higher penetration of card acceptance, especially in newer market segments after the launch of the ADF. Recently, Malaysia has also set up such a Market Development Fund to set up 800,000 new terminals by 2020.

The General Financial Rules, 2005 are also likely to be amended in terms that electronic payment modes such as net-banking, cards, wallets, UPI, etc may be added to the traditional payment methods mentioned in the rules such as cheque, demand draft, postal order, fixed deposit, national savings certificate and paper bank guarantee.

The government will also update the Payment and Settlement Mechanism to ensure faster redressal of complaints to protect consumers from any fraud and any financial loss through electronic transactions. With regard to the development fund, sources said the card issuers, banks and the government are expected to contribute to its corpus. This will be used to subsidise the cost of acceptance infrastructure such POS machines. The Finance Ministry has already sought feedback from market participants to start this fund.

Apart from these measures, new web facilities may be put in place by the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) for consumers to pay taxes and other government payments using debit cards and digital wallets, apart from the net banking facility that is already available. Currently, portals to accept these payments are designed in such a way that only only net-banking facility can be used.

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  1. L
    l s
    Jan 18, 2017 at 3:17 am
    Govt should stop taking money from people in one way or the other calling them iths tax , that tax etc. Stop these type of taking away people's money, or else be prepared to leave the central govt. People brought your party, people can kick your party too. Remember this. Jaitley should look the other way, rather looking at ways of snatching peoples money, in one form or the other.
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    1. Zafar Bukhari
      Jan 18, 2017 at 1:33 am
      For this of course there is money, every time I use my card, bank takes nearly 10% - imagine, economy-wide, even if only 5%, straight to the bank, all for the cost of telephone-line. lt;br/gt;Only a very greedy banker would imagine that those on low-to-vanishing incomes should be taxed another 10%, for the profits of a company that can turn govt. debt into tier 1 capital. Anglo-saxon capitalist model, burre wah.
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      1. N
        Needhi
        Jan 18, 2017 at 5:51 am
        PayTM, private card lenders and banks to benefit more. We pay so much tax but do not get anything. Including service tax, swacch tax, income tax we pay off nearly 50 percent of our earnings. Politicians do not need to pay any tax. We see the MLA and MP only before election. Sad situation for hard working middle cl.
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        1. T
          Tamilmani Marichetty
          Jan 18, 2017 at 1:53 am
          We have already spent crores of Rupees for replacing the currency... Now much more to be spent... Who will bear the cost... All will land on the public only... Ultimately Cashless will lead to cashless black money... The Government's intentions may be meaningful if it is permanent Government...
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          1. K
            Karthik
            Jan 18, 2017 at 2:45 am
            Soon FM would even put a "DigiDhan-Cess" on all to compensate for all costs of this self-engineered liquidity/cash crisis and add fuel to fire. You keep adding cess after cess and never cut fuel prices in proportion to fall in worldwide prices citing this,that etc ,remove most people from LPG subsidies,Ration supplies by saying one reason or other then why indirect taxes will not rise?
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