The tax exemptions announced in the Union budget to encourage the domestic manufacturing of biometric devices for making cashless payments will help reduce the cost of digital infrastructure and provide a major boost to Aadhaar-enabled payment systems, said industry experts.
The exemptions were part of several measures finance minister Arun Jaitley announced on Wednesday to boost cashless payments, reports Livemint.
“Tax breaks in the form of exemptions will ensure affordability for point of sale (PoS) devices as well as other devices and help foster better penetration for digital payments,” said Dewang Neralla, managing director and chief executive officer, Atom Technologies Ltd, a payment service provider and PoS manufacturer.
The finance minister announced major tax exemptions in basic customs duty (BCD), excise/countervailing duty (CV) duty and special additional duty ( SAD) for manufacturers of PoS card readers, mobile PoS (mPoS), fingerprint readers and iris scanners.
Additionally, in an attempt to push the usage of Aadhaar, the government also announced that 1 million additional biometric PoS machines (Aadhaar-enabled) will be installed by March and subsequently the number will go up to 2 million by September.
“The target set for PoS machines in the budget is a reflection of pushing digital payments at last mile by 300% from the current base of 15 lakh, which we have achieved so far in the last 20 years,” said Pramod Saxena, chairman and managing director of Oxigen Services (India) Pvt. Ltd, a payment company.
In October last year, Reserve Bank of India (RBI) had issued a notification asking all banks to ensure that all ATMs and PoS machines deployed from 1 January are enabled for accepting chip-enabled cards, personal identification number (PIN) or the Aadhaar unique identification number, and biometric verification.
“The duty exemptions on iris-enabled PoS devices indicates the strong emphasis that the government has placed on Aadhaar-enabled payment initiatives. With all the foundations with respect to standards, certifications and availability of devices already in place, this impetus will further accelerate the adoption and integration of Aadhaar in programs and processes that touch the everyday lives of the people of India,” said Vivek Khandelwal, vice-president of business development at Delta ID Inc., an iris scan technology developer.
Other measures meant to promote a cashless economy were more incentives for the merchants and consumers (apart from the ones that already exist) . These include two new referral schemes which will be launched to promote digital payments in 2017-18 under the Bharat Interface for Money (BHIM) app. One will be a bonus scheme for customers and the other will be a cashback scheme for merchants.
The finance minister also hinted that the recommendations in the interim report submitted to Prime Minister Narendra Modi by the government-appointed chief ministers’ panel, headed by Andhra Pradesh chief minister Chandrababu Naidu, on digital payments have been taken into consideration.
Some of its recommendations are banking cash transaction tax (BCTT) on withdrawals above Rs50,000, tax refunds up to a certain proportion of annual income for consumers who do digital transactions, no MDR (merchant discount rates) charges by banks on usage of debit and credit cards and biometric devices made available to merchants at a 50% subsidized price.