The Nepal Rastra Bank has issued instructions to implement a system where the general public will not be allowed to make cash transactions of five or more rupees from next Magh. In a circular issued by the Nepal Rastra Bank to banks and financial institutions and microfinance institutions, it has directed them to implement a limit of cash transactions of up to five lakh rupees in the purchase and sale of goods.

‘When banks and financial institutions make payments of Rs 5 lakh or more, it is mandatory to make the payment only through an account payee check or to the account of the concerned person,’ the directive states. ‘Payments of checks drawn in the name of a firm, company, organization or office must also be made through an account payee.’

However, if a depositor or saver shows a specific reason and the content and reason for the application for cash payment are found to be reasonable, such a depositor or saver may make cash payments exceeding the specified limit (banks and financial institutions will have to update the monthly statement of cash payments made in accordance with this provision), the Rastra Bank has stated. 

In particular, to help prevent money laundering, discourage cash transactions and encourage digital payment transactions, the government had decided not to allow cash transactions of Rs 5 lakh or more from the coming 1st of Magh. The government published the decision of the Council of Ministers in the Gazette on 24th of Pus. After that, the Rastra Bank has directed to implement the provision. 

Although the Cabinet meeting made the decision about a month ago, it will be implemented from 1 Magh. 'From 1 Magh 2082, a transaction limit will be set so that when buying, selling or other transactions of any service or goods worth five hundred thousand rupees or more at a time, it will have to be done through financial institutions or banking instruments,' the Cabinet decision said.

Currently, there is a provision that the general public cannot make transactions of one million rupees or more in cash. The government had decided to reduce that limit to five hundred thousand. Based on the same decision, the Rastra Bank has issued a directive. Now, the new arrangement will be implemented from 1 Magh.

There was no limit on cash transactions until 1 Shrawan 2074. The general public could make any transaction in cash. On 10 Chaitra 2073, the government had issued a notification in the Gazette and set the cash transaction limit at one million rupees for the first time. That arrangement came into effect from 1 Shrawan 2074.

‘From 1 Shrawan 2074, a cash transaction limit has been set so that any person, firm, company or organization that purchases, sells or makes other transactions of any service or goods worth Rs 1 million or more at a time must do so through a financial institution or banking instrument,’ said a notice published in the Gazette in Chaitra 2073. After about a decade, the government reduced that limit to Rs 500,000.

However, the general public is allowed to withdraw deposits exceeding the limit from financial institutions, make savings or exchanges, and make transactions to repay loans taken from financial institutions and their principal and interest. It is said that if a depositor or saver shows a specific reason and the content and reason of the application for cash payment is found to be reasonable, the financial institution where such a depositor or saver has an account can also make cash payments exceeding the specified limit to the depositor or saver.

According to Section 44 (c) of the Prevention of Money Laundering Act, 2064, the government has been given the authority to set limits on cash transactions. Sub-section (1) of Section 44 (c) empowers the government to specify limits on cash transactions for certain goods, services or other transactions by publishing a notice in the Gazette. Using this authority, rules can be made to require transactions above a certain amount to be made through banks and financial institutions instead of cash. According to the same provision, the government has currently set a limit of five lakh rupees or more for cash transactions.

The government has set the limit on cash transactions in accordance with the provisions of the Prevention of Money Laundering Act. Therefore, action will also be taken in accordance with the provisions of the same act. Section 30 of the Act contains provisions on punishment. Sub-section 9 of Section 30 provides that if this rule is violated, the amount will be confiscated, a fine equal to the amount and a fine of up to one million rupees. ‘Anyone who violates this Act or the rules made under this Act shall be liable to confiscation of the amount, if the amount is discovered, and a fine equal to the amount, and a fine of up to one million rupees if the amount is not discovered,’ says Sub-section 9 of the Act.

The government claims that the decision to reduce the maximum cash transaction limit from Rs 1 million to Rs 5 million will have a direct impact on businessmen, consumers and the overall economy. The government has multifaceted economic, financial and regulatory objectives behind the tightening of cash transactions. The first and foremost reason is to control black money. Large amounts of cash transactions make it easier to hide illegal income, launder money and carry out illegal activities. Reducing the cash limit is expected to discourage such activities.

Second, the government's main objective is to prevent tax evasion. Since cash transactions often remain outside the scope of audit, there is a high possibility of evading value-added tax (VAT), income tax and other taxes. It is believed that after the cash transaction limit is reduced, payments through the banking system will increase and transactions will come under the tax net.