On the night of November 8, 2016, PM Narendra Modi abruptly announced to the nation that he was banning the circulation of Rs. 500 and Rs. 1000 denominated notes. This was done to turbocharge the adoption of digital payments across India. Ordinary Indians were forced to switch their modes of payment at the point of sword. About 100 people lost their lives while standing in long queues to deposit bank notes.
Ten years on the BJP government is about to introduce a fee, a Merchant Discount Rate (MDR), on any UPI transactions above Rs. 2000. What is the proposal? In short:
No charges for transactions below Rs. 2000; a fee of 0.4% to be levied on merchants for UPI transactions above Rs. 2000 (capped at Rs. 300)
No person to person transactions will be charged
It is now claimed that widespread adoption of UPI transactions requires constant maintenance and even increased expenditure against rising security related threats. Recall, that the rationale behind pushing online transactions on to the people was its purported lack of friction. Now that millions have adopted online transactions, not entirely out of their own volition, this has caused enough friction in the system which requires a tax for its proper maintenance.
We must consider the following points in mind.
Even though the announcement proclaims a legal incidence on merchants only, in practice merchants are going to pass along an economic incidence of MDR on to consumers. At a time when there is a cost-of-living crisis with increased prices of LPG cylinders, and potentially increased prices of fertilizers, and food prices, this policy will be especially cruel for those who are already struggling.
The MDR is a transaction fee and has qualities of a regressive tax. By charging on transactions, one is not charging on the person’s ability to pay, i.e. income or wealth. Thus, ordinary government employees, buying goods from Amazon worth more than Rs. 2000 using UPI will pay the same transaction fee as a rich corporate employee (because merchants will pass on the incidence to the consumers) making the same purchases.
Suppose one accepts that the increased costs of maintenance and guarding against security threats cannot be avoided. And suppose, as announced by the government, one accepts the logic that this should be borne by merchants, and not by consumers. Why not charge the merchants who are recording the biggest volume of UPI transactions a transaction fee on their total volume? Make the biggest merchants, say Amazon, Flipkart, Blinkit etc. pay a fee on their total UPI transaction volume.
Lastly, let us note that there is only a 0.02% nominal fee on UPI payments to capital market intermediaries like mutual funds, stockbrokers, dealers and securities firms. That is a 20-fold less transaction fee for payments to capital markets like buying a mutual funds, investing in an IPO, buying shares through a broker, making an SIP/investment payment etc. Who makes financial payments such as those listed above? Think!
Suppose a person buys Rs. 75,000 worth of goods using UPI, they will be paying an MDR of Rs. 300. If another person invests Rs. 1 lakh in securities and mutual funds they will pay an MDR of Rs. 20. The class character of these fees are clear to ordinary people of India.
The Revolutionary Communist Party of India strongly opposes the institution of the proposed MDR on UPI transactions to be introduced from October 15th. We demand that the government consider progressive taxes on income of the super-rich, and wealth and inheritance taxes at a time when working people are going through an enormous economic crisis.