Digital Cess –The Right Move at the Wrong Time
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Last year, the Government of India rolled out its Digital India programme envisioning a cash-less and digitally primed economy. This initiative was further reinforced through new policies such as demonetization, temporary limits on cash transactions, setting up point of sale machines in rural parts of India, discounts on digital transactions for fuel, insurance, etc. and many more.
It worked. Official statistics indicate an 80% increase in the value of digital transactions in 2017-18, with the total amount expected to touch INR 1,800 crore, according to the ministry of information technology. In fact, this increase has been profitable for the government, as it saved around $9 billion by eliminating frauds in benefit payments. It also saved up to INR 57,029 crore in 2016-17 through direct benefit transfer, according to Aadhaar architect Nandan Nilekani.
However, as India moves towards a digital economy, it also gives rise to the need for stringent cyber security measures. Over the past two years, there has been a significant rise in cashless Ponzi schemes and fraudulent transactions. According to a report by The Print, cyber frauds targeting e-payments have been on the rise and cases related to e-wallets and e-payments (that were reported to banks) jumped from 13,083 cases in 2014-15 to 16,468 cases in 2015-16.
Moreover, according to the RBI, digital transactions--that leave behind a deep data footprint--grew by over 13% in October over September. Globally, too, the past few weeks have been painful from a cyber-security point of view. Be it the ransomware attacks that temporarily shut down many institutions and firms, or the Equifax breach exposed personal information of over 145 million, US customers or the 3 billion Yahoo e-mail accounts that had been breached in the 2013 attack - they all point towards the need for further investments in cyber-security.
In an attempt to further secure digital transactions, the government is contemplating on adding a cess or charge on digital payments. While the intention may be right, the timing of this move couldn't be more wrong. Here's why this move could prove detrimental to the Digital India agenda:
- For Users: At present, users pay various charges for digital transactions. This includes convenience fee, transaction charges, and cost for plastic card, like annual or joining fee as well as merchant fees. Whenever a debit or credit card is swiped, the merchant pays certain fee to card issuing or acquiring bank and payment network providers like Visa, MasterCard and RuPay. Such charges may prevent a user from doing the digital transaction and instead opt for cash payments.
- For Merchants: At a time when the government needs to invest in digital start-ups and security infrastructure, levying an additional fee may add additional burden on current market players, while also discouraging new players to enter. Unless it is a zero fee tax for merchants & consumers, this move will prove to be a futile one.
- For the Economy: Imposing cess to create fund that can be wastefully spent with little or no accountability is not exactly a boost for the economy. Moreover, expensive digital transactions will push people back towards cash, pointing towards an unsophisticated understanding of the state and drivers of the digital economy, and its impact on the overall economy.
Instead of levying a charge on digital transactions, we need to first understand what has given rise to increased instances of security breaches. According to a report by KPMG, the lack of awareness among customers and the evolving digital payment ecosystem have amplified the chances of exposure to cybersecurity risks such as online fraud, information theft, and malware or virus attacks.Most online frauds happen as people share their passwords, ATM pins, 3D secure pins, and there is a need to educate them about it. Also, a standard procedure for all e-wallets needs to be in place as right now anyone can make a wallet just by downloading the app.
Security needs to be the shared responsibility of government, organisations as well as the end users. Whileorganisations need to regularly update their software and fraud detection systems, users should be made aware of the basic security features. Therefore, the government should focus more on educating the customers as well as enforcing basic security standards for organisations and make it mandatory for all breaches to be reported. Investment in stronger security infrastructure should be high on the government's priority list.
Lower transaction charges across all the payment solutions such as UPI (Unified Payment Interface), BHIM etc. combined with the government educating the common public on benefits of digital transactions and encouragement to use them can only make "Digital India" Dream come true. Perhaps, in a few years, once India has achieved its ambitious target to make every household digitally literate and to make India the Global Knowledge hub, the government can then implement a cess on digital payments.