Bankers perturbed by increased cash transactions
Sri Lankan banks have raised concerns with the regulator on increased cash withdrawals from accounts after the tax authority requested them to share information on depositor accounts.
At a meeting with the Central Bank recently, commercial bankers pointed out that cash circulation in the country has spiked during the past four months. “Some of us pointed out that this may be due to reasons such as the recent increase in taxes and merchants settling through cash as opposed to credit card transactions due to the 18 per cent Value Added Tax (VAT),” a senior banker told The Sunday Times Business on Thursday.
He said that account holders are worried as recording transactions will compel them to go into the tax net. “The banking sector does not have a clear idea why the cash transactions have increased in the recent past, but they feel that the above reasons could be close to home,” he added.
A second banker who also participated in this meeting with the Central Bank noted that generally during the months of March to April Sri Lanka’s cash transactions rise. “This is due to the salary bonuses that get remitted to accounts on New Year’s Day. However, by the end of May, it should have come to a normal curve, but it hasn’t till now,” he added.
If this keeps happening, it is serious, bankers point out, noting that this means account holders are not willing to use banking systems. They noted that to overcome this situation, Sri Lanka can take notes from India.
“India has followed a simple mechanism to bring in limits for cash transactions and encourage banking transactions,” a bank manager said. From Demonetization to Digital India, the Government of India is trying to curtail the use of cash as a medium of transaction to other banking channels, aimed at creating a more transparent, efficient, and inclusive financial ecosystem by reducing the reliance on cash transactions in India.
The government is also imposing penalties, disallowances, and restrictions on cash transactions above certain thresholds to discourage the use of cash for high-value transactions.
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