Follow Us:
Friday, January 24, 2020

Card and carry

Electronic transactions must be encouraged — but there are better ways to do it than tax sops.

By: Express News Service | Updated: June 25, 2015 12:00:51 am
Arun Jaitley, Finance Minister, Arun Jaitley budget, tax evasion, RBI, debit usage, income tax benefit, income tax, credit card, debit card, tax benefit, income tax, latest news, govt, indian express Most of this make sense. Encouraging more people to use cards should be a policy objective in a country which, despite a GDP of over trillion, conducts a major part of transactions in cash.

Three months after Finance Minister Arun Jaitley’s budget announcement about the government incentivising credit/ debit card transactions in order to move towards a cashless economy, the finance ministry has unveiled draft proposals for facilitating electronic transactions. To achieve the broad objective of reducing tax avoidance associated with cash payments by building a transaction history of individuals and firms, apart from reducing the risks and costs involved in dealing with cash, the draft proposes making electronic transactions or card payments for government and state-owned organisations compulsory. It also proposes lowering of discount rates by merchant establishments on debit card transactions, besides tax benefits for pushing electronic payments and similar rebates to consumers too, if a certain proportion of their expenditures is made through the electronic mode. Other ideas include making it mandatory to settle transactions of a certain value only electronically and creating an enabling environment for wider usage of cards in India.

Most of this make sense. Encouraging more people to use cards should be a policy objective in a country which, despite a GDP of over $2 trillion, conducts a major part of transactions in cash. That, in turn, plays no small part in contributing to tax evasion and the generation of black money. From that perspective, and to improve overall transaction efficiency, it is important to nudge individuals and firms to take to card usage and electronic means of payment. Some of the efforts undertaken in the past by the RBI and government are slowly paying off, as reflected in the growth of credit and debit cards and in the number of RuPay cards, which now top the 11 crore mark. But a major challenge has been making debit card holders move towards using such cards for payments other than the withdrawal of cash. In India’s hinterland, where a large chunk of the population does not have bank accounts, cash is still supreme.

On the other hand, offering tax breaks to encourage electronic payments is hardly a good idea. It may have worked in South Korea, where the National Tax Service used a combination of tax incentives and veiled threats to firms on audit over 15 years ago to boost card usage, which is one of the highest in the world. Rather than fiscal sops, it makes sense for the government to push Jan Dhan, Aadhaar and direct benefit transfer, or the JAM trinity, to achieve its objective of a cashless economy over the long run. Promoting a truly national market by pushing through the GST legislation, lowering tax rates, compliance and transaction costs and creating a far more responsive tax administration are better solutions than tax sops.

For all the latest Opinion News, download Indian Express App

0 Comment(s) *
* The moderation of comments is automated and not cleared manually by indianexpress.com.
Advertisement
Advertisement
Advertisement
Advertisement