Zina Kumok
Updated on: October 8, 2024 1:58 pm GMT
The Goods and Services Tax (GST) Council is set to deliberate the potential implementation of an 18% GST on payment aggregators (PAs), such as BillDesk and CCAvenue, during its upcoming meeting scheduled for September 9. This proposed tax pertains to digital transactions with values up to Rs 2,000, conducted through credit and debit cards. A report from CNBC-TV18 suggests that the GST Fitment Panel believes these payment aggregators should be classified as intermediaries rather than banks, which may warrant the imposition of GST.
Background on Current GST Exemptions
Currently, payment aggregators are exempt from the GST for transactions under Rs 2,000, a threshold that represents a significant portion of digital payments in India. More than 80% of all digital transactions fall below this value, making it crucial for small businesses that engage in frequent, low-value transactions. This exemption was originally instituted following the demonetization efforts in late 2016, which prompted the government to facilitate easier access to digital payments.
In light of evolving financial ecosystems and changing regulations, the GST Council’s consideration of this tax comes as part of a broader initiative to formalize the taxation systems governing digital transactions. While the existing framework has been in place for several years, authorities have recently ramped up efforts to ensure compliance since the introduction of the GST regime in 2017 and have begun collecting taxes retroactively starting from fiscal year 2017-18.
Potential Implications for Payment Aggregators
If the GST Council proceeds with the imposition of an 18% tax on payment aggregators, these companies might pass the increased costs onto the merchants they serve. Payment aggregators typically charge a service fee ranging from 0.5% to 2% per transaction. For example, a transaction valued at Rs 1,000 incurs a fee of Rs 10 at a 1% rate. Should the GST be applied, this fee would rise slightly to Rs 11.80—though this increase may seem minor, it can accumulate quickly given the volume of transactions completed by small businesses daily.
This move could carry more significant consequences for small enterprises that rely heavily on these low-value transactions. Many small merchants might find themselves grappling with elevated costs, thus impacting their profitability and ability to operate efficiently in an increasingly digital market.
Impact on High-Value Transactions
In contrast, larger merchants dealing with high-value transactions may not experience substantial financial repercussions from the proposed GST. For high-value transactions, the marginal increase in transaction costs may be absorbed more easily without jeopardizing the business’s overall bottom line. Nevertheless, the proposed tax reflects a shift in how digital payment services are perceived and managed under the GST regime.
Growth of UPI and Its Exemption
It is essential to note that the GST is applicable solely to digital transactions conducted via debit and credit cards. The Unified Payments Interface (UPI), which is favored for small-value transactions and currently does not impose a Merchant Discount Rate (MDR), would remain unaffected by this new taxation policy. UPI has seen remarkable growth in recent years, achieving over 131 billion transactions in the fiscal year 2024, representing a 57% year-over-year increase. With UPI accounting for more than 80% of retail digital payments, it stands out as a cost-free option for consumers and merchants alike.
Next Steps and Council Meeting
The GST Council’s upcoming meeting on September 9 will be pivotal in determining the fate of the proposed 18% tax on payment aggregators. Chaired by Finance Minister Nirmala Sitharaman, the session will draw attention from various stakeholders, including small business owners, payment companies, and regulatory bodies. The impact of any new tax policy on digital payment methods is a pressing issue for many as it could significantly reshape how transactions are processed in India.
As discussions unfold, merchants and payment aggregators alike will be keenly observing the outcomes. The decisions made during this meeting may lead to alterations in the digital payment landscape in India, affecting both businesses and consumers and potentially paving the way for more comprehensive regulations in the payments space.
People who want to know more about these changes should keep an eye on trusted financial news sources. These sources will share information about the GST Council’s decisions and how they affect digital payment systems in India.
