Govt’s waiver on service tax on credit/debit card transactions may incur losses upto whopping Rs 1,000 crore

The Indian Government is pushing for waiving-off service tax on swiping debit or credit card but as per some bankers, this move will incur extra losses.

As per senior bankers, the waiver of MDR on debit/credit card transactions till December 31 will increase their losses upto whopping Rs 1,000 crore. Merchant Discount Rate or MDR that is the cost paid by the merchants to banks for card transactions.

Some bankers want the Indian Banks Association to take up the issue with the government. Presently, the major banks and payments companies have waived off MDR till 30th December.

"We have not received any formal instructions from the government in that matter, but we have been assured that if there is revenue loss to banks because of waiving of these charges, they might compensate us from a technology fund that they have set aside," a senior banker who did not wish to be identified, told ET.

As per various reports, the government feels that MDR is the major reason responsible for merchants not going for digital transactions.

"The government feels that why should a merchant pay a part of the money he receives through card transactions to banks, hence in order to boost digital payments they need to waive the fees off," a senior official with a payments company, told ET.

Therefore, they are hoping that the industry lobby body Indian Banks' Association could take up the issue with the government.

Bankers while justifying MDR, said that there is a cost associated with the maintenance of the card acceptance and payments infrastructure and MDR is a major source of revenue for these payment companies.

As of now the Reserve Bank of India has capped MDR for debit card transactions at 1 per cent for any payments beyond Rs 2,000 and that at 0.75 per cent for anything below Rs 2,000, rates for credit card transactions have not been capped and get charged as per arrangements between banks and the merchant outlet.

"I believe that card transactions can never be free as there is a cost associated with maintaining the terminals, time is ripe to shift to light weight models of transaction like USSD or UPI where banks could work on narrower margins," one of the persons quoted above, told ET.