Now that the Goods and Services Tax (GST) implementation date is round the corner, there is anxiety among consumers as to how this indirect tax regime would hurt their wallets if they were to use credit cards for their fuel purchase at petrol pumps.
This is more so given that the government has for now kept petroleum products out of the GST net.
So, buying petrol for your car, SUV or two-wheeler at the petrol pumps will not attract GST as regards the purchase price. However, if one were to use the credit card and revolve the credit, then any interest charged by the card issuer would attract 18 per cent GST (on the interest portion) as financial services, say tax experts.
Also, GST levy would get attracted at consumers’ hands if they were to absorb the Merchant Discount Rate (MDR) that petrol station owners sometimes pass on to the buyers of petrol for using debit or credit cards at the petrol pumps for completing their transactions.
“Unless specifically exempt, any transaction involving a consideration for service availed would attract GST,” said R Muralidharan, Senior Director, Deloitte in India.
Pratik Jain, Head of Indirect Taxes at PwC in India, said that credit card usage related charges (levied by credit card issuer) and purchase of petrol at petrol pumps are different set of transactions.
One involves a transaction between buyer of petrol and petrol outlet dealer and the other is between credit card issuer and the customer.
The two have to be viewed separately, he said, adding that GST would not be levied for purchase of fuel at petrol pump stations.
MDR is basically the commission charged by the bank that provides the necessary infrastructure to the merchant to accept payments using cards.
It may be recalled that petrol outlets across the country had earlier this year decided to stop accepting payments through credit card and debit cards. This move was prompted by certain banks’ decision to charge for the card transactions. However, the issue was sorted out after the government’s intervention.
Even today policy makers are grappling with the MDR issue, especially in the post-demonetisation era.
Although government-appointed committees have gone into this issue, the Centre and the RBI do not seem to be on the same page as to what extent MDR should be regulated.