In a bid to boost transactions using debit cards and credit cards, the finance ministry is mulling providing tax benefits to merchants for accepting electronic payments. According to a draft proposal (pdf), the ministry is considering extending a tax rebate to a merchant if at least say 50% value of the transactions is through electronic means. Alternatively, 1-2% reduction in value added tax could be considered on all electronic transactions by the merchants, the ministry added.
The ministry is also considering income tax rebates for consumers who for paying a certain proportion of their expenditure through electronic means and levying of a nominal cash handling charge on transactions greater than a specified level. The government also suggested rationalisation of the Merchant Discount Rate (MDR), which at present is 0.75% on Debit Card transactions of up to Rs 2,000 and 1% on all transactions above it. “The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardised/ rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructure,” it said.
The ministry also said that government departments should consider introduction of appropriate acceptance infrastructure or adopt national E-payment gateway ‘PayGov India’ for collection of revenue, fee and penalties etc.
Noting the low penetration of point-of-sale (POS) terminals in the country, the ministry also proposed that non-banks institutions could be authorized to install white label POS terminals.
There are only two companies in India which are prominent players in the POS terminals market: Verifone and Ingenico. India has an abysmal number of point-of-sale terminals at merchants. According to latest RBI data, the total number of POS terminals in the country are 1,125,675 as of April 2015. Compare that to 564,707,913 debit cards and 21,288,891 credit cards in circulation.
It’s therefore no wonder that an Ernst and Young report points out that the country has the lowest POS terminal penetration in the world. The report further adds that there are only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people.
It’s worth noting that earlier this year, the Competition Commission of India (CCI) has slapped a penalty of Rs 4.48 crore on point-of sale (POS) terminal provider Verifone India for abusing its dominant position and imposing restrictive deals for providing software development kits (SDKs). This could also point out to why the POS terminal penetration in India is low.
To enhance adoption of mobile banking, the finance ministry also said Unstructured Supplementary Service Data (USSD) charges could be examined and rationalized. Currently, the telecom companies are charging a USSD charge of Rs. 1.50 per transaction for mobile banking/payments.
Image credit: Verifone