FinMin’s two faces: One unit wants to penalise while the other believes in incentives for the same goal!
While one unit of the finance ministry want to penalise citizens for using cheque and cash, another unit believes in providing 2% incentives to encourage online transactions
The finance ministry wants to encourage the use of online payment systems. However, there seems to be two opposing methods being used by the finance ministry to achieve the same goal. While its Financial Services department want to penalise citizens for using cheque and cash, a Committee on Payment Systems suggested giving a 2% incentive on online tax payments.
The Committee has suggested an incentive of 2% lower sales tax, service tax, goods and service tax if a product is procured and payment made online for encouraging merchants and consumers to look at internet-based small-value transactions.
On 25 October 2012, DD Maheshwari, under secretary in the Department of Financial Services sent out a fatwa
to all chief executives of public sector banks (PSBs) asking them to consider charging a processing fee from the customer paying credit card dues
either in cash or through cheque. This idea was taken from HDFC Bank that recently increased such charges from Rs50 to Rs100 per transaction.
According the suggestion made by the Committee, the incentive can also be offered to the consumers in terms of value added tax (VAT) refund on the use of credit and debit cards, for encouraging card usage.
While online payment is one of the futures in payment systems, the finance ministry seems to have ignored the ground realities. According to IntenetWorldStats.com, as of June 2012, India ranked at the bottom in top 20 countries across the world in internet penetration. UK was the topper with 83.6% of its population having access to internet the same for India was just 11.4%.
According to a report by Internet and Mobile Association of India (IAMAI) and Indian Market Research Bureau (IMRB), as of December 2012, there were about 15 crore internet users in the country, out of which 8.71 crore accessed it from mobile devices.
Last month, while speaking at a seminar on “Principles for Financial Market Infrastructures and Innovations in Retail Payment Systems”, Harun R Khan, deputy governor, RBI said, “Although, the recent financial crisis did not show any strong evidence of correlation between payment systems and financial stability, going forward, payment systems, both large value and retail, could be the source of instability when the financial transactions moves largely to electronic mode that gives rise to several operational and financial risks.”
In addition, the central bank on 28 February 2013, asked all banks to put in place security and risk control measures to minimise the impact of cyber attacks on electronic payment systems.
Unfortunately, it appears that the finance ministry is forcefully intervening into the RBI’s territory of retail payment systems, which is one of the primary functions of the financial regulator.