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The proposal to charge a 0.1 per cent tax on all cash withdrawals exceeding Rs 10,000 per day is impractical and expensive.

The banking system has to keep track of cumulative withdrawals in a 24-hour period for all customers, calculate the tax, debit the account and credit tax collection and thereafter remit the proceeds to the Government.

A simpler way would be to impose an annual tax on total cash withdrawals.

The Finance Minister could advise State Governments to encourage debit/credit card payments for purchases by reducing the sales tax.

Consumers make cash purchases to avoid the tax on sale, a practice encouraged by retailers.

V.K. Ramani

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