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Demonetization: Mandatory Cashless (Digital) Payment to Fight Corruption in

Nepal Dr. Arjun KC


Going to the digital and cashless payment system at all levels of government, public and
private businesses is the only way to fight corruption in Nepal. While, I do not see any
leader that has any intention (let alone the vision) to fight against rampant corruption in
Nepal, I cannot stop myself being optimistic.

A payment is simply understood as the transfer of value from one party to another either to
exchange goods and services or to fulfill a legal or contractual obligation between the parties
for good and services. The first form of payment we learned from the history is the barter
system which involves exchanging of a good or service for another. Even today, this system
is prevalent in many societies throughout the world. Nonetheless, recently, the most common
payment method involves the use of cash money, cheque, credit or debit cards, bank
transfers, stocks and shares. The Bitcoin, a cryptocurrency, is one of the latest systems for
payment.

Even though the meaning of payment looks simple, the transfer of payments is an extremely
complex industry. Yet, trends have clearly shown that the business opportunities for the next
few decades lie largely on digital transaction and electronic transfers for businesses, both of
the public and private sectors. It has already been seen that individuals are gradually
developing confidence in using their smartphones for all kinds of formal and information
transactions including shopping at stores, shopping online and paying rent among other
things. It is very uncommon in many countries for governments and businesses to digitally
pay their employees and clients. With innovation in smart household devices from
refrigerators to smartwatches, we now have features with payment capabilities that may
change the consumer's behaviour dramatically. Similarly, blockchain (database) technologies
such as Bitcoin (electronic money), currently in its infant stage, could bring about a paradigm
shift in how consumers and digital payments would be carried out. The future of digital
payment will depend on how the traditional debit and credit processing chain will change
along with the role that acquirers, processors, banks, card networks, sales organizations as
well as software and hardware developers and suppliers may play.

Payments for goods and services is about transferring monetary information from one
person, business or party to another person, business or party. When a digital transfer
occurs, there is an evidence of the transfer in some way through the financial institution
(bank, credit unions etc) which facilitates the transfer.

There are a number of advantages of the digital/cashless payment system. The cashless
payment system is secured through regulated financial institutions such as banks. As all
payments made on-site are processed digitally, this simplifies operations and reduces time
and staffing costs for businesses and the government. There is no need to count money or
weigh tokens, or good. All on-site purchases are instantly recorded digitally and are always
tractable as and when needed.

In many developed nations of the world (US, Canada, Mexico, Brazil, UK, Australia,
European Union etc) people can use an entirely digital payment system. There is no need to
carry cash anywhere. Groceries, clothing, automobiles, computers and virtually anything can
be purchased without cash at hand. Every transfer has a clear record of the amount, time,
senders and receivers. In Canada, if someone transfers more than a certain amount ($1000
or more), a government issued photo identification is required which is linked to the national
identification number every citizen has. This allows the government authorities to more
effectively track the transfer of funds and investigate if required even after several years.

Recently, the Central Government of India has decided to go cashless in all form of
payments. The government has also announced a number of discounts measures for
consumers who pay digitally (eg: 0.75 % discount on petrol and diesel pumps, 0.5 % on
railway tickets, 8-10% in life and general insurance, 10% discount on highway tolls, no tax on
transactions up to Rs. 2000 etc). The government is also investing a huge amount in digital
infrastructure in rural areas. The Central Government will provide financial incentives to the
eligible banks to deploy two POS ('Point of Sale': machines capable of scanning barcodes
and printing receipts) digital machines in one lakh villages with less than 10,000 population.
These digital machines are intended to be deployed at primary cooperative societies/milk
societies/agricultural input dealers to facilitate agri-related transactions through digital means.
This measure will provide benefits to farmers of one lakh villages with a total population of
nearly 75 crore as they will have facility to transact cashlessly in their villages for their
agriculture needs.

The whole principle behind digital payment is that all transfers are tracked and thus nobody
can hide their sources of money or whether they have spent their money, which will give the
government ammunition for tax collection from all eligible sources and curb on black money
or funding to unintended organization.

In Nepal, there are neither laws that state the requirement for digital payment systems not
sufficient digital infrastructure to carry out digital payment at all level of businesses. When
the transfer of money takes place in the form of cash, it is very hard to track where the money
came from, what the source of the money was and whom it was transferred to. There may
not be any trail of such cash transfers until a receipt is issued. This is even worsened when
printed fake receipts and bills are available in retail stores with no tax links and used as a
proof. That is where money mismanagement and corruption starts. Even the government
organizations accept such fake receipts, which is ridiculous. Recent cases where series of
Chief of Armed Police force in Nepal prepared fake bills and embezzled billions of tax payers
rupees is a vivid example of corruption which could never have happened if the government
offices have gone to digital payment system. May millions of such cases happening in Nepal
daily and the government neither has intension nor vision to tackle rampant corruption in
Nepal.

No fake receipts will be accepted when a digital system is implemented. No tax hiding can
take place from persons and businesses; there can be no reduction in land prices to avoid
the land transfer tax. Businesses cannot avoid taxes, shopkeepers cannot write fake
bills/invoices, corporations and NGOs cannot also hide where their money is being spent.
This will also be instrumental in tracking the illegal donations to political parties and party
leaders.

In order to stop the corruption in Nepal, the government must prepare itself to go to digital
payment in the next three to five years. It will take this long to develop digital infrastructures
such as meeting energy infrastructures in various parts of the country. With the advancement
in digital and information technology, Nepal can dramatically transform itself in the way the
government and the public/private businesses are being run. Its importance will be even
greater if Nepal ever implements the federal system, under which the tax system could be
much more complicated.

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