An interim report prepared by a 13-member panel headed by Andhra Pradesh chief minister Chandrababu Naidu on ‘Digital Payment- Less Cash Economy’ submitted to the Prime Minister Narendra Modi on Tuesday has suggested some sweeping changes in policies and regulatory framework to encourage people, businesses and other stakeholders to make a swift transition from cash to electronic transactions.
These included recommendations such as permanently doing away with MDR charges, banking cash transaction tax (BCTT) on transaction of more than Rs 50,000, cap on maximum permitted limit of cash for large transactions, subsidy of up to Rs 1,000 for smartphones for small merchants, insurance for all mobile-based transaction and a host of other such measures to promote digital transaction.
Naidu, who addressed the media after handing over the report to the PM, dispelled the fear that removal of MDR charges would result in losses for the banks and payments gateways saying that the cost was due to the e-point of sale (PoS) machines that were provided by the financial organisations and tech firms to merchants.
He said now that mobile phones would now act as “micro ATM” that cost would vanish.
“Competition will anyway do this (scrap MDR levy) over time, but we are deciding to move it a bit fast through the policy. We will now have to work on how to convince the banks. Earlier, each bank provided e-PoS machines for which they were collecting money. Now, transactions will not need e-PoS as your smartphone will act as micro STM,” Naidu said.
To expedite the shift to the digital economy, the panel has called for Aadhaar to be made primary identity for know-your-customer (KYC). For this, amendment to the PMLA rules would be required.
It has also advised that all the state and central government entities like insurance, education institutes, fertilisers, public distribution services (PDS), petroleum and others should “switch to digital payments” modes.
The panel also wants lower or no MDR on all digital payments made to the government bodies.
In order to expand and strengthen connectivity and hardware infrastructure, it has asked the government to make all payment banks and banking correspondents interoperable through Aadhaar enabled payment system (AEPS), create infrastructure for over 1.5 lakh post offices through interoperable Aadhaar-enabled-micro-ATMs, promote contactless payments for buses and suburban trains in metro cities and onbaord rural and urban cooperative banks on digital transaction platform immediately.
It has suggested tax incentives like relief in prospective taxes for encouraging merchants to adopt digital payments and not retrospective taxation on merchants carrying out digital transactions. “Tax incentives to be extended to micro-ATMs, biometric sensors, etc. Domestic production to be encouraged,” says the report.