Sample Material of Current Public Administration Magazine
Information & Communication Technology
Tax on Cash Transaction is not a good Idea
A committee of chief ministers has suggested measures that could help the
government tide over some of the problems that have dogged it in the aftermath
of demonetisation. Ever since the government announced that digitising the
economy was one of the impulses behind the demonetisation move, it has been
asked difficult questions — and rightly so — on the paucity of digital
infrastructure in the country. While the government has never really claimed
that the e-payments infrastructure in the country was up to the mark, the CMs’
committee set up to look into ways to migrate people to digital payments has
made a significant admission: It has acknowledged that “digital transactions are
costlier than cash”.
“We must make the transactions cost-effective and strengthen cloud servers on
the bank side,” Andhra Pradesh Chief Minister Chandrababu Naidu, who heads the
panel, said after submitting an interim report on digital payments to Prime
Minister Narendra Modi. Some of the committee’s recommendations try to address
the concerns voiced by small traders after the government announced its
intention to digitise the economy. The CM’s panel has suggested that the
ministry of electronics and information technology subsidise the purchases of
smartphones by small merchants and those outside the income tax bracket. The
panel has also recommended tax rebates to incentivise digital transactions.
These incentives come with an unwelcome disincentive. The panel has recommended
the reintroduction of the bank cash transaction tax (BCTT). The tax, which was
levied on cash withdrawals of over Rs 50,000, was originally introduced in 2005
to keep track of unaccounted money and trace its source, but was withdrawn in
2009. There have been periodic demands to reintroduce the tax. In 2014, the Tax
Administration Reforms Committee chaired by Parthasarathi Shome had recommended
reinstating the said tax as “an effective administrative measure”.
The government had then rejected the recommendation on grounds that it would
hurt the economy. Given that the economy has undergone a shock in the aftermath
of demonetisation, re-introducing the BCTT would be ill-advised. Taxing cash
transaction will also do more harm than good since, even by the committee’s
admission, there is some way to go to make digital transactions economical.
Internet speeds in the country, for instance, are notoriously slow. It would be
unfair to expect that digital infrastructure can be created overnight — or even
in a few months. The incentives suggested by the committee, however, could spur
the migration to a digital economy even while the government works on boosting
infrastructure. The ball is now in the finance minister’s court.
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