KATHMANDU, May 23: The government is putting Rs 1 million cap on cash transactions starting July 16.
The decision means any individual, firm, company or organization will not be able to make payment of purchase of service or commodities of Rs 1 million or higher on cash. The government set the new cap in consultation with Nepal Rastra Bank (NRB).
The decision, which was published in Nepal Gazette, means payment of or above Rs 1 million should be made through banking channel or instruments like check, draft, credit card and debit card, among others, from July 16.
The existing cash transaction limit is Rs 5 million. However, the limit has not been strictly enforced as it was introduced through a circular of Nepal Rastra Bank (NRB) that regulates bank and financial institutions (BFIs).
Since the new cash transaction limit has been brought by the government and has been published in the Nepal Gazette, breaching of cash limit rule could come under legal scanner.
The government's latest move comes amid growing concern that cash transactions make things easier for money laundering. The cash limit rule is in line with a provision in an anti-money laundering act which was long overdue.
Though the Asset Laundering Prevention Act (ALAP), 2008 requires any firm or individual to make transactions only through negotiable instruments while purchasing any products or services to a certain amount or more than the specific amount that the government publishes in the Nepal Gazette, the delay in setting threshold for cash transaction has affected implementation of the provision. The Article 41 of ALAP states that the government shall make an arrangement for such threshold in consultation with the central bank.
The new rule, however, will not affect depositing, saving and exchanging cash in bank and financial institutions, repayment of loans and interests and cash transactions between bank and financial institutions.
By lowering the threshold, the government also wants to stir the country toward 'cash-less' system and encourage the use of other negotiable instruments like checks, drafts, credit cards, debit cards, Internet banking, mobile banking and branchless banking, among others, say government officials.
Stakeholders say that the fixation of minimum threshold for cash transaction also helps to reduce tax evasion, revenue leakage, financial crimes and illicit flow of finance. Use of other negotiable instruments over cash also reduces the cost of the government in terms of publishing, issuing, circulating, handling and management, destruction, and security of bank notes.