NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, June 24, 2015

The government has put out draft proposals on Monday to encourage electronic transactions in the country.

This, going by the draft, will be done through incentivising both the consumer, who makes the payments and merchant, who accept it, by tax benefits if a certain portion of their total transactions do not involve exchange of cash.

According to the draft paper, merchants will get tax benefits if they accept at least, say, 50 percent value of the transactions is through electronic means. Alternatively, 1-2 percent reduction in value added tax could be considered on all electronic transactions by the merchants, the paper says.

Consumers will get income tax rebates if they pay a certain proportion of their bill electronically. The draft paper also recommends re-examining the authentication requirements for different classes of transactions based on the risk profile and safety requirements.

Besides, even utility service providers can consider offering discounts to the customer for small ticket payments made electronically, the paper proposes. This is already done by some companies such as BSNL, which offers 1 percent discount on e-payments. Again, this can encourage large number of consumers to begin transacting using plastic money.

The idea is a clear winner to kill the counterfeit cash transactions in the domestic economy for the simple reason that any transactions made through plastic money/ electronic channels leave a trail and can be tracked by taxmen and investigators. Also, a record of such transactions offers evidence on the purchasing patterns of individuals and trends on financial inclusion in the economy.