E-payments: Dangerous unaccounted exceptions

E-payments: unaccounted exceptions lead to corrosion and corruption

The phase of ‘demonetisation’ or de-legalising Rs.500 and Rs.1000 notes is drawing to a close.  By 31 December, it will be known how much of the Rs.14.21 lakh crore will reach the banks. According to the Reserve Bank of India (RBI) around Rs.12.4 lakh crore of high value currency notes had already reached the banks.

2016-12-22_fpj-pw-exemptions-corrosion-corruption-confusionThe government’s announced last week that political parties too could also deposit such old notes into their accounts through banks.  So is the political advantage sought  from demonetisation lost (http://www.asiaconverge.com/2016/11/will-demonetisation-work/)?

But the demontetisation process will allow the government to do three excellent things.

First, it gives the government a huge database of incremental deposits of over Rs.12.4 lakh crore.  That could mean many more income tax declarants getting registered.  Some say that this number could lead to a quadrupling of the total number of tax payers.

The second is the possibility of e-payments reducing the country’s dependence on cash. The prime minister’s announcement last week that e-payments will not involve “post-mortems” — and that previous years’ accounts will not be re-opened — will certainly help.  Thus, the cash economy could shrink. Transaction transparency could lead to lowering of tax rates and the introduction of transaction taxes. Currently, high taxes lead to massive government corruption (http://www.asiaconverge.com/2016/12/gst-and-govt-corruption/).

But the government has not spoken a word about weeding out people who have used the 100% tax-exempt agricultural income route as a laundromat (http://www.asiaconverge.com/2016/07/indias-biggest-laundromat-agriculture/).  As pointed out earlier, the years 2011 and 2012 saw agricultural income tax declarations swell to over eight times India’s GDP (or over 125 year of annual taxation).  True, this figure is not reflected in the Economic Survey, the Budget papers, or the RBI’s statistical archives.  However, the income tax department has not cancelled such declarations either.  Something stinks!

Another area where the PM’s silence is disturbing is regarding government-spurred corruption (http://www.asiaconverge.com/2016/12/gst-and-govt-corruption/).

But there is a third area as well. The government’s attempt to introduce e-payments along national highways for toll payment is laudable.  But as of last week, only 23 of 345 toll stations on National Highways had been RFID-enabled.

The idea of billing vehicles seamlessly is an excellent one.  This is what many advanced countries do.  All that a vehicle has to do is to have an RFID gadget (with a payment card) attached to the windscreen.  The toll gates catch the signals of the RFID gadget, And it debits the required toll, on the basis of the type of vehicle and the time of travel. If the vehicle’s RFID gadget or the payment card does not work, the vehicle is automatically photographed. Stiff penalty  — via emailed ticketing, or physical interception by the police — then follows.  All other vehicles pass through seamlessly.

The reason why work on the RFID project has got delayed is because someone wants to work on ways to get the huge exemption list (see table) included in the software. That is a stupid and dangerous idea.

Changes, if any, should never be done at the software stage.  Instead give them a different type of payment card – each with a different serial number – which then debits the required amounts to a government account.  The accounts team can then write the software to bill people, exempt them or even cancel the cards.

This way, the toll gate software is never changed.  It remains both uniform and robust.

It will also give the country several advantages.  There will be a record of how many vehicles of an officer have travelled on tolled roads.  It will also point to any possible misuse of such vehicles.  More importantly, it gives the toll operators a precise count of the number of vehicles that went through the gates without paying anything.  That will help them in the-roll-gate-bidding process more accurately when the next such opportunity comes up.

This should be the method used for all exceptional payments – even for airlines and trains. You thus capture all automatic upgrading of certain passengers from economy to executive/first class, or even free travel.  Every facility is paid for and accounted.

By fiddling with the toll gate software, the government actually encourages poor performance of the software and more frequent breakdown.  That should never be allowed.

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