The Finance Ministry on Wednesday said the government has not taken a final call on the recommendations made by the sub-committee of Chief Ministers led by Andhra Pradesh Chief Minister Chandrababu Naidu on digital payments.

The committee, which submitted its interim report on Tuesday, had recommended various measures including the recommendation relating to levy of banking cash transaction tax on transactions of over ₹50,000 to incentivise people towards digital payments. “It is informed that the government has not yet taken any final view on the recommendations of the committee,” said the Finance Ministry, adding that the report will be carefully examined and appropriate decisions will be taken in due course.

Sources indicated that such a move, even if it is not announced in the Union Budget 2017-18, may be implemented eventually as a means to discourage cash transactions and curb black money as well as move to digital payment solutions in the medium to long run.

The idea of levying a penalty or tax on high value cash transactions has been gaining currency in the past as well with other government appointed panels also coming up with similar suggestions.

In its report on digital payments, submitted to the Finance Ministry in December, a high-level panel led by former Finance Secretary Ratan Watal had also called for imposing “nominal charges after a certain limit” on cash transactions.

The Special Investigation Team headed by Justice MB Shah (retired), in its report submitted in last July had also suggested banning cash transactions above ₹3 lakh.

Experts’ view

Experts said a banking cash transaction tax (BCTT) should not be seen as a revenue generating measure but as one aimed at discouraging the use of cash and preventing tax evasion.

“The government has been trying to push people to pay taxes voluntarily but it is yet to get desired results. A BCTT could be considered by the government as this an easy way to collect taxes but its impact on the common man as well as on the businesses needs to be examined,” said Kuldip Kumar, partner and leader (personal tax), PwC.

The threshold for levying the tax also needs to be examined — whether it should be kept at ₹50,000 or ₹1 lakh or even lower.

“A BCTT will act as a deterrent for high value cash transactions and will also incentivise people to use digital payments,” said Sunil Sinha, Principal Economist, India Ratings, while noting that people could still look for loopholes like in the case of mandatory quoting of PAN for cash deposits of ₹50,000 and above.

Significantly, the UPA government in 2005 had introduced a BCTT at the rate of 0.1 per cent on cash transactions of over ₹10,000 on a single day with scheduled banks.

It was, however, subsequently withdrawn in 2009 by the then Finance Minister P Chidambaram as he said that the levy had served its purpose and data on cash transactions was now available from other sources.

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