Scrapping of inter-state trade tax under scanner State finance ministers will discuss adjudicating powers in GST today
The Union and state finance ministers would on Tuesday debate scrapping the proposed one per cent tax on inter-state movement of goods proposed in the Constitution amendment Bill on goods and service tax.
The Centre has been pushing hard to build a consensus on the legislation so that it can finally be passed in the ongoing monsoon session of Parliament.
Finance Minister Arun Jaitley and the empowered committee of state finance ministers might also thrash out a vexed issue over distribution of adjudicating powers between the Centre and state indirect tax departments.
“The removal of the one per cent additional tax on inter-state trading may come up for discussion at the empowered committee meeting. With that the GST structure will improve considerably, as although it is there only for two years, there will be some amount of cascading effect,” said a government official.
Jaitley will chair the meeting with the state finance ministers on Tuesday, after which the Constitutional amendment Bill on GST may come up for a discussion in the Rajya Sabha.
The Constitution amendment Bill, as passed by the Lok Sabha in May 2014, sought to impose additional levy of up to one per cent over and above GST to help the manufacturing states such as Gujarat, Tamil Nadu and Maharashtra, since the GST is destination-based.
However, this sparked fears that the levy would lead to a cascading, tax on tax, since it would not be a part of the GST chain.
To balance the grievances of manufacturing states and assuage fears, a select panel of the Rajya Sabha had suggested limiting the one per cent tax over GST to only those inter-state exchanges of goods for which there was a monetary consideration.
This means that only inter-state trading of goods would draw this tax and not company-to-company transfer. States charge central sales tax on sales made outside their territory, which will not be available under the GST regime.
The Congress, in its dissent note to the select committee report, wanted to eliminate the one per cent tax altogether since it, the Opposition party claimed, “distorts the market”.
India will have the most advanced digital payment ecosystem over the next five years, backed by Unified Payments Interface (UPI) and Aadhaar as well as growing internet user base, rising smartphone penetration and positive regulatory changes, according to Rajan Anandan, vice-president (southeast Asia and India) at Google.
According to a new report by Google Inc and Boston Consulting Group, India's digital payments sector will be worth $500 billion by 2020. This means the country will see $500 billion flowing through digital payments, which will contribute to 15 per cent of the country’s GDP.
The report is based on a consumer survey, which entails 3,500 respondents including 1,156 digital consumers, 917 remittance users, and 917 merchants across nine geographies - Delhi, Mumbai, Bengaluru, Ludhiana, Lucknow, Indore, Surat, Vishakapatnam, and Coimbatore.
It also includes 14 group discussions as well as 26 in-depth interviews for users and merchants in three cities - Mumbai, Lucknow and Delhi.
“Spurred by smartphone penetration, and supported by progressive regulatory policy, the digital payments industry is at an inflection point and is set to grow 10 times by 2020,” said Anandan, adding: “We expect that half of India’s internet users will use digital payments and the top 100 million users will drive 70 per cent of the gross merchandise value by 2020.”
UPI is an integrated open architecture setup that brings together all service from Immediate Payment Service, Automated Clearing House to Rupay into one platform, allowing it to provide services to all payment services providers such as banks, fintechs, and payments banks, and facilitating peer-to-peer payments, person-to-merchant payments, and business-to-business payments.
India is expected to have 650 million internet users and 520 million smartphone users by 2020. Out of whom, according to the report, around 300 million consumers will be using digital payments. About 60 per cent of digital payments value will be contributed by offline points of sale such as unorganised retail, eateries, transport, etc. The report also noted that micro-transactions will form a substantial portion of the industry, with 50 per cent of person-to-merchant transactions expected to be under ~100.
Overall, in consumer payments segment, non-cash payment instruments including cheques, demand drafts, net banking, credit/debit cards, mobile wallets and UPI will double its contribution to 40 per cent by 2020, and will reach 50 per cent by 2023, the report said.
“Global digital payments industry is undergoing rapid transformation and is set to grow four times in value terms by 2020. India is on an even more exponential growth trajectory. The smartphone explosion will usher in a new era in digital payments in India over the next few years that will see digital payments exceed $500 billion by 2020 and non-cash transactions exceed cash transactions by 2023,” said Alpesh Shah, senior partner and managing director, The Boston Consulting Group, India.
"Going forward, next-gen technologies like voice-based payments, biometrics and iris authentication through mobiles, QR codes, wearable devices and internet of things will play a significant role in driving the adoption of digital payments."
Lack of reach and complexity of using digital payments systems were found to be the key barriers, among others.
The report found 50 per cent of those who do not use digital payments not willing to use because they found the product too complicated to understand, while 61 per cent of non-user merchants find it complex to use.
Additionally, universality of acceptance of digital payment methods and merchant concerns around speed of transactions during peak hours have emerged as other inhibitors to usage.