India set to incentivise electronic payments

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The Indian government is attempting to move away from cash transactions by rewarding merchants and consumers with a tax rebate if they use more electronic payment methods.

The finance ministry has prepared a draft discussion paper proposing benefits such as an appropriate tax rebate or a 1-2 per cent reduction in value added tax for establishments that accept electronic payments.

‘‘One way to curb the flow of black money is to discourage transactions in cash. Now that a majority of Indians has or can have, a Rupay debit card. I therefore, proposes to introduce soon several measure that will incentivise credit or debit card transactions and disincentivise cash transaction,’’ explained Arun Jaitley, India’s minister of finance.

These plans are fuelled by the government’s desire to create a well-rounded financial history for its citizens, allowing them to have better access to loans, as well as decreasing the amount of tax avoidance in the country.

Another way in which the government plan to incentivise the use of electronic payments is by improving the Merchant Discount Rate (MDR), which currently stands at 0.75 per cent per debit card transaction.

‘‘The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardised/ rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructure,’’ states the discussion paper.

Governments around the globe are trying to discourage cash payments. Recently Payment Eye reported that the Central Bank of Ireland is to abolish the use of its one cent and two cent coins.

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