The proposal to provide income tax relief for usage of debit and credit cards has run into opposition -- within the government.
According to sources, the revenue department has flagged a host of concerns, and expressed reservations on the draft proposal of the department of economic affairs (DEA) to promote electronic payments. The two departments are likely to engage in a series of detailed discussions to sort out these issues.
Tax benefits, lower transaction fees for electronic payments and a nominal charge on high-value cash transactions are among likely steps that the government plans to implement to become a cashless economy.
The government had on June 22 released draft proposals to encourage electronic transactions in a bid to curb generation and circulation of black money. The draft proposes a mix of steps to increase debit and credit card usage, mobile payments and other forms of electronic transactions. “The goal of the proposed policy is to provide necessary incentives to use e-transactions to replace the use of cash — either in government transactions, or in regular commerce over a period of time through policy intervention,” according to the draft proposals.
The revenue department feels that if the draft proposals are implemented in their present form, it would not be sufficient to fulfill the objective of discouraging the use of cash and cracking down on the illegal economy, sources told HT.
Sources said the department also feels giving tax rebates to consumers for making e-payments might impact revenue collections, already hit by the economic slowdown.
At Rs 6,96,200 crore, direct tax collections during 2014-15 were only marginally short of the government target. The government had revised down the direct tax collection target to Rs 7,05,000 crore for 2014-15 against the initial projection of Rs 7,36,000 crore in view of sluggish growth.
Other key issues flagged by the revenue department include: difficulty in implementing the proposal, need to introduce a regulatory framework, impact on revenues due to tax breaks.
“To cover the entire country in this way would be difficult,” the source said. “The penetration of electronic mode for transactions is not to the extent it is required, secondly, doing away with transaction charges on card payments at petrol pumps, gas agencies and railway tickets is also something which needs to be considered in detail. A lot of stakeholders are involved in this, who are in return giving service tax which is levied on such services,” the source said.
The revenue department has also requested the DEA to give clarity on tax relief it wants to give, and the impact of these on revenue collections.
To the point of a possible 1-2% reduction in value-added tax (VAT) for electronic transactions by merchants, the department felt it involves states as well, and their collection of VAT would also be impacted.