Zina Kumok
Updated on: October 7, 2024 10:04 pm GMT
The Goods and Services Tax (GST) Council is poised to discuss a significant proposal concerning the taxation of payment aggregators (PAs) during its upcoming meeting scheduled for September 9, 2024. The recommendation suggests imposing an 18% GST on small digital transactions, specifically those under ₹2,000, when conducted through debit and credit cards. This potential policy shift could reshape the financial landscape for many small businesses that rely on these platforms.
Background on Payment Aggregators
Payment aggregators serve as third-party facilitators that enable businesses to accept online payments from customers. Currently, these entities are exempt from GST for transactions valued under ₹2,000, managing small digital payments ranging from QR codes to point-of-sale (POS) systems and net banking options.
This exemption was set into place following the demonetization initiative in 2016, which aimed to promote digital transactions and reduce reliance on cash. At that time, the government aimed to ease the transition to a cashless economy by eliminating service taxes on small transactions.
Proposed Tax Implications
According to reports from CNBC-TV18, the GST Council’s fitment committee—composed of revenue officials from both the central and state governments—now views PAs as more than just conduits for payment processing. The committee suggests that since these entities are not banks, they should be subjected to GST for their intermediary role in credit and debit card transactions.
The ongoing discussions suggest a potential shift in the approach towards digital payments. A financial executive quoted in the report emphasized that the imposition of this tax could adversely affect small businesses that predominantly perform low-value transactions daily, as payment aggregators may likely pass on the additional tax burden to merchants.
Current Fee Structures
At present, payment aggregators typically charge merchants fees that range from 0.5% to 2% per transaction. The anticipated introduction of an 18% GST would likely mean increased costs for these merchants, potentially affecting their operation and pricing strategies. If implemented, this policy could raise the overall cost of using digital payment services.
Industry Reactions
Industry stakeholders have expressed concerns regarding the potential proposal and its ramifications on small businesses. Many in the financial sector stress that small merchants will be the most affected, facing not only pre-existing transaction fees but now an additional tax that may hinder their profitability.
The discussions at the GST Council’s 54th meeting, chaired by Finance Minister Nirmala Sitharaman, will be critical in determining the outcome of these proposals. The insights gathered during this meeting will not only guide this specific taxation rule but may also set precedents for future regulations concerning digital payments and their associated costs.
Conclusion
The new 18% GST on payment services for transactions under ₹2,000 is raising big questions about the future of small online payments in India. People involved in this issue are watching closely as the GST Council meets to make important decisions that could affect businesses all over the country. As digital payment rules change, it’s important to find the right balance between taxes, keeping businesses strong, and helping the digital economy grow. Everyone—workers, shop owners, and customers—should stay updated as things progress.
