Digital payments: Panel recommends abolition of MDR, tax on cash transaction above Rs 50,000

New Delhi: In a move to encourage digital payments and transaction, the Chandrabanu Naidu panel on Tuesday suggested a series of ideas including abolition of merchant discount rate (MDR).

The panel led by Andhra Pradesh Chief Minister Chandrababu Naidu recommended levy of cash transaction tax for cash transactions or withdrawals of Rs 50,000 and above.

Committee on digital payments led by Andhra Pradesh CM N. Chandrababu Naidu recommends levy of tax on cash transactions of 50,000 & above — ANI (@ANI_news) January 24, 2017

To encourage digital transaction, the Chandrababu Naidu panel, in the report to PM Modi stated that bringing down cost of digital transactions was key to success of digital payments.

In this regard, the panel suggested abolition of MDR and imposing tax on cash transaction above Rs 50,000.

The 'Merchant Discount Rate' is charged to a merchant by a bank for providing debit and credit card services.

The committee comprising Maharashtra Chief Minister Devendra Fadnavis and Madhya Pradesh Chief Minister Shivraj Singh Chouhan has also asked the Centre to promote Aadhaar Enabled Payment System (AEPS) by incentivising and not charging MDR.

It further suggested that no retrospective taxation should be imposed on merchants doing digital transactions besides subsidy of Rs 1,000 for smart phone purchase to non-income tax assessees and small merchants.

The other recommendations include tax incentives for micro ATMs, biometric sensors etc. And tax refund for consumers using digital payment up to a certain proportion of annual income.

When asked how sure he was about incorporation of these recommendations in the forthcoming budget on February 1, Naidu said, "I am very confident about that."

Explaining about advantage of digital payments, he said that there are lots of cost of handling physical currency because of its printing, movement and security while there is no such cost for digital currency.

Naidu also elaborated that with the increase of volume of digital transitions, the cost will reduce and there is huge opportunity in India because non-cash payment transitions by non-banks per capita per annum is 11 in the country as compared to 26 in China, 728 in Singapore, 355 in the UK, 142 in Brazil, 70 in South Africa and 32 in Mexico.

Similarly, the report highlights that the number of (cashless) pay points per million people are 1,080 in India as against 31,096 in Singapore, 30,078 in the UK, 25,241 in Brazil, 7,267 in South Africa, 7,189 in Mexico and 16,602 in China.

The panel made a case for relief in prospective taxes for encouraging merchants to accept digital payments and no retrospective taxation to Merchants doing digital transactions.

It also suggested that for Aadhaar Pay, Biometric (FP & Iris) sensors should be provided at 50 per cent subsidy to all merchant points.

The panel said in its interim report that all payment banks and banking correspondents should be made interoperable through AEPS and also provide infrastructure for 1,54,000 post offices by way of interoperable Aadhaar enabled Micro-ATMs.

Naidu also suggested insurance for all digital transactions to safeguard the interest of people going cashless.

With PTI Inputs