If a fee is charged on business transactions above Rs. 2,000, it is estimated that Rs. 22,000 crore will be collected in a year. This is only an approximate estimate.
The central government has announced that an MDR of 0.4 percent will be charged on business transactions above Rs. 2,000 made through UPI across the country. This has drawn widespread opposition. The reason is that when it is said to be 0.4 percent, it may seem like a small hook, but if you do the math and see that it will bring in Rs. 26,000 crore to Rs. 28,000 crore a year, you realize there is a big catch.
How is that?
In the month of August alone, transactions worth Rs. 29.82 lakh crore were carried out through UPI. Of this, 30 percent were transactions made by individuals to merchants.
Of these 30 percent transactions made by individuals to merchants, only 67 percent were transactions above Rs. 2,000 and are currently eligible for MDR charges.
Therefore, if we consider that an MDR charge of 0.04 percent was levied on 67 percent of the Rs. 29.82 lakh crore amount, which was made by individuals to merchants and exceeded Rs. 2,000, then Rs. 2,397 crore may have been collected in August.
If this Rs. 2,400 crore is taken as an average amount, then when calculated for 12 months, it is said to be as much as Rs. 28,000 crore.
However, this amount will not be collected with complete precision, because a fixed charge of Rs. 5 will be levied for railway, fuel, insurance, and similar services.
For any amount above Rs. 75,000, only Rs. 300 can be charged. Therefore, Rs. 28,000 crore can be taken as an approximate figure. This will vary from month to month.
If the central government were to give only 20 percent of this total amount to transaction app companies, that itself could be Rs. 5,760 crore.
Economists allege that if companies like PhonePe, which are currently operating at a loss, receive this amount, the market value of those companies could rise sharply.
Not only that, the central government will also collect 18 percent GST on this MDR collection amount. This MDR fee has been implemented in such a way that it fills the pockets of large companies while also ensuring a substantial amount goes to the central government.
It was against this backdrop of calculations that opposition parties accused the MDR fee levy system of possibly being influenced by pressure from foreign companies, which the central government denied.
Small traders, the backbone of the economy, are beginning to question whether the central government is moving the country toward progress by collecting this amount from poor and ordinary people in the name of MDR charges and passing it on to large corporations.
What is the MDR charge?
This MDR is the fee that merchants pay to digital payment service providers and banks.
The central government clarifies that these charges can be used to improve finance-related infrastructure and to enhance security and customer service.
This MDR fee will be shared by the bank and the digital service providers. For credit cards, a fee ranging from 1 percent to 3 percent is charged based on the transaction amount, and for debit cards, a fee of 0.9 percent is levied.
However, UPI service has so far remained free of charge. A fee has now been announced. It applies only to merchants, not to individuals, it says.
Merchants are expected to pass this fee on to customers indirectly in any case. However, it is noteworthy that the central government has instructed banks to ensure that the burden of MDR is not passed on to customers.