CHENNAI:
Former Reserve Bank of India governor C Rangarajan has urged the GST Council to keep UPI person-to-merchant transactions above ₹2,000 outside the GST net, arguing that India should first decide whether the digital payment system needs to carry a cost and whether now is the right time to impose it.
The 57th GST Council meeting is scheduled to be held in New Delhi on October 8.
Speaking at an event marking the launch of Cashless Nation: How UPI Changed Everything at IIT-Madras, authored by Dr Santanu Paul and B Sambamurthy, Rangarajan said there was a strong case for treating UPI as a public good, while cautioning that this did not necessarily mean it had to remain free forever.
“There is no general rule that no price should be charged on public goods. There are public goods on which prices are charged,” he said, citing museums and parks as examples.
The more immediate question, he said, was whether the time had come to impose a charge on UPI transactions.
“There is also the argument that 75% of transactions will not bear any charge. But that cuts both ways. If 75% of transactions will not carry a cost, why introduce the charge at all?” he said.
Rangarajan suggested that the cost of maintaining the payment infrastructure could instead be recovered at a later stage, perhaps over a five- or 10-year period.
“The question to ask today is whether today is the right time to do it,” he said.
He also pointed to a tax consequence of introducing a fee. Once a charge is levied for a payment service, it would constitute a taxable service and attract GST, requiring the government to determine the applicable rate.
“The moment you levy a charge, it automatically attracts GST, because it is a service provided, and GST will have to be paid,” Rangarajan said.
“My response is very clear. I would urge the GST Council, when it next meets, to come out clearly and say that GST should not be levied,” he said.
The authors of the book, meanwhile, highlighted the features that helped UPI become a mass-market payment system, particularly its interoperability and low cost.
The book's authors, Santanu Paul and B Sambamurthy, argued that UPI's success rested on four features: it is instant, easy to use, interoperable and free.
Paul said its architecture reflected what Nandan Nilekani, Infosys co-founder, calls the "four-party model". Any app on the sender's side can transact with any app on the receiver's side, and either party can draw on any bank account. Two fintech companies and two banks thus deliver the efficiency of a payment within a single bank.
Some of India's largest lenders resisted the design, Paul said, because it threatened a business in which payments had long been something customers paid for. "Some of the biggest banks in the country were trying to crush the four-party model," he said.
Sambamurthy said the regulator made a "conscious decision" to mandate interoperability because UPI is a public good. That contrasts with systems elsewhere, where users can transact only within one platform's network.
Zero fees also transformed merchant acceptance. Before UPI, taking electronic payments typically required a point-of-sale terminal costing about ₹10,000. A QR code now does the job at almost no upfront cost.
Former Reserve Bank of India governor C Rangarajan has urged the GST Council to keep UPI person-to-merchant transactions above ₹2,000 outside the GST net, arguing that India should first decide whether the digital payment system needs to carry a cost and whether now is the right time to impose it.
The 57th GST Council meeting is scheduled to be held in New Delhi on October 8.
Speaking at an event marking the launch of Cashless Nation: How UPI Changed Everything at IIT-Madras, authored by Dr Santanu Paul and B Sambamurthy, Rangarajan said there was a strong case for treating UPI as a public good, while cautioning that this did not necessarily mean it had to remain free forever.
“There is no general rule that no price should be charged on public goods. There are public goods on which prices are charged,” he said, citing museums and parks as examples.
The more immediate question, he said, was whether the time had come to impose a charge on UPI transactions.
“There is also the argument that 75% of transactions will not bear any charge. But that cuts both ways. If 75% of transactions will not carry a cost, why introduce the charge at all?” he said.
Rangarajan suggested that the cost of maintaining the payment infrastructure could instead be recovered at a later stage, perhaps over a five- or 10-year period.
“The question to ask today is whether today is the right time to do it,” he said.
He also pointed to a tax consequence of introducing a fee. Once a charge is levied for a payment service, it would constitute a taxable service and attract GST, requiring the government to determine the applicable rate.
“The moment you levy a charge, it automatically attracts GST, because it is a service provided, and GST will have to be paid,” Rangarajan said.
“My response is very clear. I would urge the GST Council, when it next meets, to come out clearly and say that GST should not be levied,” he said.
The authors of the book, meanwhile, highlighted the features that helped UPI become a mass-market payment system, particularly its interoperability and low cost.
The book's authors, Santanu Paul and B Sambamurthy, argued that UPI's success rested on four features: it is instant, easy to use, interoperable and free.
Paul said its architecture reflected what Nandan Nilekani, Infosys co-founder, calls the "four-party model". Any app on the sender's side can transact with any app on the receiver's side, and either party can draw on any bank account. Two fintech companies and two banks thus deliver the efficiency of a payment within a single bank.
Some of India's largest lenders resisted the design, Paul said, because it threatened a business in which payments had long been something customers paid for. "Some of the biggest banks in the country were trying to crush the four-party model," he said.
Sambamurthy said the regulator made a "conscious decision" to mandate interoperability because UPI is a public good. That contrasts with systems elsewhere, where users can transact only within one platform's network.
Zero fees also transformed merchant acceptance. Before UPI, taking electronic payments typically required a point-of-sale terminal costing about ₹10,000. A QR code now does the job at almost no upfront cost.
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