Tax return for credit card to bar financial inclusion

The tax on digital payments tools should be reduced and incentives should be given to encourage electronic payments in a bid to transform the country into a cashless society, said Syed Mohammad Kamal, country manager of Mastercard.

"Urgent action is suggested to introduce fiscal measures that simplify obtaining digital payments tools and incentivise digital payments, aligning with the vision of a Smart Bangladesh," said Kamal while sharing his reactions about the proposed budget for the next fiscal year.

According to the government's vision of "Smart Bangladesh" by 2041, the country would become a technology-driven smart nation, a strategic roadmap building on the existing "Digital Bangladesh" Vision.

With four fundamental pillars — Smart Citizen, Smart Economy, Smart Society, and Smart Government — the vision outlines an inclusive society and an aspiration to become a fully cashless economy.

However, amidst discussions of building a Smart Bangladesh and a cashless economy, Kamal said, one critical pillar remains unaddressed in the recent budget: incentivising digital payments.

The digital payments industry, including different top chambers, had long anticipated the introduction of a 5 per cent incentive on digital payments, of which, users would receive a 3 per cent incentive for conducting digital transactions, while merchants would benefit from the remaining 2 per cent for accepting digital payments.

"This crucial initiative was not implemented in FY2023-24. We believe the government will look into this to fast-track digital payments in Bangladesh," said Kamal.

Recognising the importance of digital payments for convenience and financial inclusion, it is highly likely that the government will soon take the necessary steps to seize the opportunity to unlock the full potential of "Smart Bangladesh".

He said there is a requirement of mandatory tax return submission for 39 services, including getting a credit card by a new customer. This is creating a huge roadblock to ensure a more financially inclusive population.

"In order to benefit the payments industry, it is crucial to review and potentially revise the regulation mandating compulsory tax returns for issuing credit cards."

He suggested the government consider enforcing such mandatory tax returns for new credit card-holders eligible for Tk 500,000 or higher credit limit, while anyone below this limit should be allowed to get a credit card by submitting the TIN certificate. 

By introducing flexibility to this requirement, more individuals can access the benefits of credit cards, fostering greater adoption and industry growth. However, the recent budget missed opportunities for digital transformation in this particular payment method, he said. 

Kamal recommends implementing reduced tax rates for two particular areas with a view to supporting the growth of the cashless payments industry.

First, a reduced tax rate for the import of plastic cards, a majority of which is still imported and has a tax rate of 76 per cent. The high tax rate on procurement increases costs and hinders the industry's ability to provide cost-effective cashless payment solutions.

Second, a substantial reduction in the tax for point of sale (PoS) machines may be considered, he said.

Presently, the tax rate is 37 per cent leading to a high cost of PoS machines. This discourages the wider adoption among the merchants and makes it difficult for banks to invest in PoS procurement.

"If this tax rate is lowered significantly, businesses will find it more affordable to offer cashless payment options and maintain efficient fund management," said Kamal. 

"Implementing these tax measures will create a favourable environment for the payments industry in Bangladesh, enabling it to thrive and provide convenient and secure payment solutions for citizens and businesses alike."

Kamal thinks while the payments industry has witnessed advancements in contactless cards, wallets, and QR-based payments, further encouragement is necessary to drive the transition toward a cashless economy.

This can be achieved by relaxing the rules on compulsory tax returns for credit card issuance, significantly reducing import tax rates for plastic cards and PoS machines, and promptly introducing a 5 per cent incentive on digital payments, he said.  

"Fast implementation of these measures will help fast-track the payments ecosystem and achieve our vision to become a less cash or cashless society."