Finmin In Talks For Rethink On Credit Card Service Tax

The ministry of finance is in dialogue with the Indian Cooperative Committee (ICC) of MasterCard International to relook at the five per cent service tax levied on credit cards with effect from July 16, 2001.

"We are in talks with the ministry of finance and are working with closely with the government to ensure that the industry (credit card) grows and with that invoiceable sales," said MasterCard International vice president & country manager South Asia, Sameer Vakil. ICC which is a committee of MasterCard credit card issuing banks, together with American Express and State Bank of India, have taken up the issue for discussion with the government.

"We do not feel that the levy should be eliminated altogether. Yet at the same time, we would want the government to encourage payments by cards as this would result in increase sales tax, adding to the exchequer, and decreasing the pressure on the government to handle cash," said Vakil.

There are certain grey areas that the government is looking into with regards to the five per cent levy, he added.

The government through the ministry of finance had come out with a proposal to tax a range of services within the credit card business, wherein the consumer paid for the same administered by the credit card issuing banks. Banks are at various stages in the implementation of the five per cent levy.

The government is looking at the various arguments put forth by the ICC. "We feel the government has accepted our arguments. Taxing credit card users on revolving credit would be discriminating the use of this specific line of credit.

After all, consumers have various choices in terms of loan products right from personal loans to credit cards, said Vakil.

ICC has broken up the services rendered by credit card issuing banks into three parts namely card fees (subscription fees, annual fees, add on fees, and renewal charges), financial charges for revolving credit and other charges. Banks find it acceptable to the five per cent levy on joining fees, annual fees, add on fees, and renewal charges. However, levying the tax on revolving credit would discriminate this "convenient" credit line option and discourage the use of cards, said Vakil.

In the case of other charges being taxed, bankers opined that it would not be worth while to administer the tax for services like retrieving old statements for tax purposes or charging fees for defaulters.