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'Tax regime that levies a lower tax rate on cashless transactions'

V.P. Nandakumar     January 31, 2017

There are three broad points we would like the budget 2017 to address:

Incentivise cashless payment:  Having taken the trouble to demonetise higher denomination notes, we believe the government should now go the full distance in moving India towards a cashless economy. But rather than enforcing it by a top-down approach, the government should rely largely on an incentive mechanism that rewards cashless transactions followed by some relatively mild disincentives on the use of cash.
Particularly helpful would be a tax regime that levies a lower tax rate on cashless transactions. Once people see the prospect of monetary gain from going cashless, they will themselves seek out ways to get into the cashless modes. In this context, a permanent withdrawal of all convenience fees, service charges and surcharges levied by government agencies (like utility service providers and for various payments by consumers to government) has been suggested and this idea is worth implementing. Once worthwhile positive incentives are in place, the government can then consider disincentives such as a tax on cash withdrawal above a certain limit etc. which will now face less resistance

Roll back additional 10% tax on Dividends above Rs 10 lakh:  The 2016 budget had levied an additional tax at the rate of 10% of gross amount of dividend on investors receiving dividend in excess of Rs 10 lakh per annum. This tax is in addition to the dividend distribution tax already paid by the company and amounts to taxing the same income twice. Further, if you consider that dividends are paid out of the post-tax profit of a company, this measure amounts to taxing the same income three times.

This is not fair and it unnecessarily penalises the risk taking entrepreneurial class who would have ploughed their personal wealth and savings in their businesses. As it stands, it is nothing but a tax on entrepreneurship and therefore should be revoked.

Reinstate priority sector status to eligible gold loans by NBFCs: Until 2011, gold loans given by NBFCs to eligible categories of borrowers (agriculture, MSME, micro-loans etc.) were considered as priority sector which allowed NBFCs to obtain refinance from banks on relatively better terms. The subsequent withdrawal of priority sector status has pushed up borrowing costs for these borrowers as banks lack last mile reach and have largely been unable to fill the gap. Accordingly, we believe a restoration of the status quo is needed.


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