Recently, the Government of India announced several incentives to promote digital payments. These included 10% incentive on LIC payments. (Refer article here).
The incentives announced were for the following transactions.
1.Discount of 0.75% on petrol and diesel sold through Government Petroleum PSUs
2.Discount upto o.5% for monthly or seasonal tickets railway tickets bought online from January 1, 2017
3. Free accidental insurance upto Rs 10 lakhs for railway passengers booking tickets online
4. Discount of 5% for railway paid services such as catering, accommodation retiring rooms etc paid through digital means
5. Discount of upto 10% on the premium in General Insurance policies and 8% in new life policies of LIC sold through the customer portals in case payment is made through digital means.
6. Additionally, it was stated that
(a) “Government departments and PSUs will ensure that transactions fee/MDR charges associated with payment through digital means shall not be passed on to the consumers and all such expenses shall be borne by them. State Governments are being advised that the State Governments and its organisations should also consider to absorb the transaction fee/MDR charges related to digital payment to them and consumer should not be asked to bear it.”
(b) “Public sector banks are advised that merchant should not be required to pay more than Rs 100 per month as monthly rental for PoS terminals/Micro ATMs/mobile POS from the merchants to bring small merchant on board the digital payment eco system. Nearly 6.5 lakh machines by Public Sector Banks have been issued to merchants who will be benefitted by the lower rentals and promote digital transactions.“
(c) No service tax will be charged on digital transaction charges/MDR for transactions upto Rs.2000
(d) For the payment of toll at Toll Plazas on National Highways using RFID card and Fast Tags, a discount of 10 per cent will be available to users in the year 2016-17.
These were not only welcome measures but were required since Government was actually pushing people to digital payment system which is known to be more risky than cash payments. While we can argue for the economic benefits of the cashless society. when the Government forces people to a certain system of Governance as a transformation from the current system, any additional cost impose will amount to “Tax”.
Hence while the incentive were necessary for bringing in more users into the system, it was mandatory for the Government that no new additional financial burden is imposed on the customers by virtue of transforming one self from cash payments to digital payments.
It is however observed that LIC has actually introduced new charges for online payment of premium which was not there in the previous years. It appears that the charges are being levied for Credit Card payments but not for Debit Card or Internet Banking payments.
This practice does not seem to agree with the Government’s intentions of promoting cash less society since payment through a debit or credit card is not the concern of LIC since it anyway receives its payment immediately. If the customer wants to pay it out of his savings or from credit card borrowings should not affect the insurance contract which is “Covering of a risk for payment to a consideration?”. Using the opportunity to disincentivise credit cards is an “Unfair Trade Practice” and needs to be discontinued forthwith.
Further it is also necessary for the Government to completely withdraw Service Tax from all digital payments and not upto only transactions of Rs 2000/-. Where digital payment services are used for larger payments, most probably it would be for payment of other goods and services for which taxes have already been levied. Collecting the service charges for paying out of digital means instead of cash is a direct levy for the digital transformation. I therefore request the Finance Minister to withdraw the service tax on all digital transactions immediately without waiting for the budget.
Last but not the least, since the Government is pushing citizens into a higher risk domain in digital transactions, its silence in not reacting to the RBI failing to confirm its “Limited Liability Circular” of August 11 is not acceptable.
Mr Arun Jaitely seems to be unaware of the implications of RBI not confirming the circular which was first issued as “Draft for Public Comments” and not further re-issued. I wish the finance ministry takes note of this and advise RBI to confirm the circular without any further delay.