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Centre must go full distance with cashless drive: Manappuram CEO

Monday, January 30, 2017
The Hindu Business Line

Says Budget should restore priority sector status for gold loans given by NBFCs

Having taken the trouble to demonetise higher denomination notes, the Centre should now think of going the full distance in moving India towards a cashless economy, according to VP Nandakumar, MD and CEO, Manappuram Finance, a leading gold loan company.

Rather than adopt a top-down approach, it should devise an incentive mechanism that rewards cashless transactions, followed by some relatively mild disincentives on the use of cash, Nandakumar said in his views on what he expects from Budget 2017-18.

Lower tax
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 cashless modes. Once positive incentives are in place, the government may then consider disincentives, such as a tax on cash withdrawal above a certain limit, which will then face less resistance.

The idea of 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) is worth implementing, Nandakumar said.

Tax on dividends
Budget 2016 had levied an additional 10 per cent tax on gross dividends in excess of ₹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, Nandakumar said.

Further, if one considers 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.”

Gold loans
Until 2011, gold loans given by NBFCs to eligible categories of borrowers (agriculture, MSME or micro-loans) 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, Nandakumar said.

“Accordingly, we believe a restoration of status quo is needed,” he added.