State govts oppose Centre’s proposal on sharing MDR burden under GST

  • Several states, including those ruled by the BJP, have opposed the Centre’s proposal that the burden of Merchant Discount Rate (MDR) charges should be shared between the Centre and states for payments of taxes up to Rs 1 lakh through debit cards under the Goods and Services Tax (GST) regime.
  • Earlier every time a debit card or credit card  swiped in any state  for a transaction by a customer the charges were taken care by Central Government.
  • A decision needed to be taken on the sharing of MDR charges for GST payments up to Rs 1 lakh using debit cards, between the states and the Centre.
  • Now under GST central government want to share these transaction charges with state , which is being opposed by several state because they do not want to bear extra financial burden.
  • Under the GST regime, it had been provided that taxpayers would be able to make payments of CGST, SGST, IGST and the GST compensation cess by a single transaction, through a single challan.

MDR (Merchant Discount Rate)

  • The rate charged to a merchant by a bank for providing debit and credit card services. The rate is determined based on factors such as volume, average ticket price, risk and industry.
  • The average merchant discount rate is between 1-3% . However, for online merchants, the rate tends to be higher.

Views of different States.

  • Delhi: Since the Centre had been bearing this expense, it should continue to do so.
  •  Puducherry: The burden on the state governments should be worked out before taking a decision on the mechanism to split the MDR charges between the states and the Centre.
  •  Andhra Pradesh: Since demonetisation, the Central government had been giving incentives to make payments by credit and debit cards, so the state governments should not be given this burden after the GST rollout.
  • Uttar Pradesh: UP govt.  suggested that the Central government could bear the entire charge for the first two years and then the states could take a call whether to bear this charge or not.
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