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Jharkhand waives off VAT on mobiles below Rs 5,000 to push mobile banking

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The state government of Jharkhand has decided to waive off value added tax (VAT) on mobile phones below Rs 5000, including both feature phones and smartphones, reports the Hindustan Times. The initiative is undertaken with the goal of encouraging mobile and cashless banking in the state.

The state normally charges 14% VAT on most goods. For a Rs 5000 device, this should save the user ~ Rs 700 if the benefit is indeed passed on by manufacturers/shopkeepers. It’s not clear if purchases from outside the state (specifically from ecommerce website), will also be VAT free.

Various government agencies have been pushing for adoption of digital payments since the surprise demonetization move last month. Last week NITI Aayog launched a series of incentives for encouraging digital payments for day to day financial transactions like buying or selling goods/services, transferring money etc., at the district, taluk and panchayat level, while various banks have sped up the adoption of the Unified Payments Interface (UPI), and other means to encourage digital payments.

More significantly, to boost usage of debit and credit cards for small value transactions, the government waived off service tax for transactions up to Rs 2,000Note that this exemption applies only to the Merchant Discount Rate (MDR) which banks levy on merchants and not on the whole Rs 2,000. This might mean that banks will pass on the benefit of the service tax exemption to merchants and lower the MDR.

Government has also removed excise duty on the import of goods for the manufacturing of POS  machines.

Note that while digital payments have increased during this period, it has also overburdened POS terminals across the country and bank servers with the additional load causing transactions to fail, and first time users not having the best experiences. While demonetization is also an opportunity to take bank account usage beyond just ATM withdrawals, adequate care must be taken to ensure that failing transactions and/or network do not put off new users from using digital payments in the future.

It’s also worth noting that state government have also started imposing ecommerce taxes on shopping goods online which, ironically, is pretty much equivalent to discouraging online buying and selling, while at the same time incentivizing and encouraging people to convert to using digital payments.

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