A Finance Ministry committee has suggested that the Government should introduce tax incentives for online payments.

An incentive of, say, 2 per cent lower sales tax / service tax/ goods and service tax could be considered if a product is procured and payment made online.

This would encourage the merchant and the consumer to look at small-value transactions being enabled online.

An incentive can also be offered to the consumers in terms of value added tax (VAT) refund (on the use of credit and debit cards), thereby encouraging card usage. VAT-based incentives are important as an enabler to reduce transactions in the informal economy.

“These (incentives) can be implemented via rebates on card spends beyond 10 per cent of total income, and push use of credit cards for travel and entertainment expenses,” said the committee on payments systems.

As transaction taxes apply both at the Central and State levels, incentives can also be provided by way of reduction or abatement of taxes at both levels.

The Committee felt that, to begin with, the rate of service tax applicable for transactions through credit or debit cards may be reduced.

“Some tax incentives, so as to promote electronic payments, have been successfully implemented across the globe, especially in Latin America.

“A good menu of incentives can potentially drive consumer behaviour from cash usage to cards and can be very effective,” the committee said.

Contactless cards

Banks should begin issuing secure multi-application contactless smart cards. They should gradually move away from magnetic stripe cards to contactless smart cards. The committee observed that this (contactless smart cards) would provide a secure mode of authentication for multiple banking channels with a single sign-in.

Massive savings would be possible if the Citizen Identification (ID) card being issued by the National Population Register integrates e-governance, banking and transit applications. This card should be standardised as a contactless smart card.

Besides ID (with biometrics and photograph), the card can be used for access control, and government services such as National Rural Employment Guarantee Scheme, Public Distribution System, Rashtriya Swasthya Bima Yojana, e-voting (for Elections), and Driving Licence.

The card can also double as an electronic purse for transport (for metro, rail and bus) and low-value retail payments, parking and toll, as debit card for banking, kisan credit card, and digital signature. Digital signature would ensure secure authentication by every application.

Banks may explore the option of for giving benefits like loyalty rewards to customers who use electronic payment systems.

Ramkumar.k@thehindu.co.in

(This article was published on March 9, 2013)
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