The All India Consumer Products Distributors Federation (AICPDF) on Friday said it strongly opposes the proposed imposition of Merchant Discount Rate (MDR) on UPI transactions as any additional transaction cost on will disproportionately affect millions of small retailers, distributors and other low-margin businesses. It has also written to the Prime Minister and requested the government to reconsider its decision and retain UPI as a zero MDR payment system for merchants.
In its submission, the industry body has raised questions on why the entire burden of financing the digital infrastructure is being placed on merchants. At the same time, it has asked that B2B payments within the FMCG supply chain should be exempted as B2B supply-chain settlements. It also said the government should clearly define the operation of the ₹1 lakh threshold and ensure no retrospective MDR liability. It has also asked the government to address the implications of calculating MDR on the tax-inclusive gross payment and address any resulting cascading tax incidence.
Dhairyashil H Patil, National President, AICPDF said, “UPI is one of India’s most significant indigenous technological achievements. It has transformed the country’s payment ecosystem and brought digital payments to millions of merchants and consumers. We must protect what made UPI successful, which is simplicity, affordability, accessibility and universal acceptance.”
Expressing concerns, the industry body has questioned why the entire burden of financing the digital infrastructure should fall on merchants. “If the overall UPI transaction value is approximately ₹328 lakh crore and the total expenditure associated with operating and supporting the UPI ecosystem is around ₹20,700 crore, the aggregate cost works out to approximately 0.06 per cent of the total transaction value. If a sustainable funding mechanism is considered necessary, the cost should be equitably distributed across the ecosystem and should not disproportionately burden the trader who is already operating on extremely thin margins,” the industry body added.
“UPI is a service used by the entire economy, not by traders alone. If there is a requirement to recover a portion of the cost of maintaining this enormous digital infrastructure, the Government should examine a broad-based mechanism rather than making the merchant the sole payer. The trader should not be penalised simply because he accepts digital payments,” Patil said.
AICPDF has pointed out that FMCG retail and distribution operate on extremely thin margins and against such a cost structure, a 0.4 per cent MDR can represent a significant erosion of actual earnings.
“The Government itself has recognised this principle by providing a flat ₹5 MDR, instead of 0.4 per cent, for specified essential and thin-margin sectors including fuel, telecommunications, insurance, railways and agricultural inputs. It is therefore difficult to understand why FMCG retail and distribution—also a high-volume, low-margin business—has been excluded from similar consideration,”it added.
The industry body added that the trader fraternity cannot be put in a situation where digital payment becomes expensive and cash handling also carries a cost. Traders should not be forced to choose between two costly payment mechanisms, it added.
AICPDF has also asked the government to examine whether MDR should instead be calculated on the appropriate pre-tax transaction value, wherever legally and operationally feasible, and has sought suitable GST relief on MDR.
It has also highlighted that retailer-to-distributor and distributor-to-company payments are B2B commercial settlements, not consumer transactions. “The distributor has already supplied goods, provided credit, carried inventory, undertaken delivery and assumed collection risk. Applying MDR at multiple stages could therefore create repeated transaction costs within the same supply chain. AICPDF has consequently requested that retailer-to-distributor and distributor-to-company UPI payments should remain completely exempt from MDR,” the statement added.
The Federation has further requested that the consequential GST burden on such MDR should also not arise .It has also sought explicit clarification on what happens once a merchant crosses the ₹1 lakh monthly UPI receipt threshold. AICPDF has demanded that there should be no retrospective application of MDR to transactions undertaken before the threshold was crossed The industry body has also sought complete transparency so that merchants can clearly know when the threshold has been reached and how MDR is being calculated.