There have been
rumors being circulated that payments made using credit cards or other
electronic modes of payment would result in double taxation under the
newly-launched Goods and Services Tax. However, this is not correct since this
tax is not based on the transaction, it is applied on the fees, or the merchant
discount rate (MDR) that the merchant is charged by the bank. Since merchants
are not allowed to pass on the MDR to the customer, any credit card
transaction is not charged to the cardholder.
For the customer
there is no change as the merchant discount rate is not allowed to be passed
on. For banks the difference is that they will now get input tax credit under
GST. In the financial sector the only real impact of the imposition of GST is
the three percentage point increase in tax.