Budget 2023 Expectation: Rural fintech industry seeks GST, TDS waiver for specific financial services by BCs
One of the big success stories from the pandemic was the ability of the digital payments space to grow and scale quickly. The government helped in this process with incentives and tax rebates.
To ensure that the digital payments ecosystem continues to grow and scale, the finance minister can consider waiving Goods and Service Tax (GST) and tax deducted at source (TDS) for specific financial services offered by Business correspondents in rural areas.
Tax waiver, subsidies to improve BCs economic viability
Business correspondents are bank representatives who help villagers open bank accounts and undertake banking facilities. They work on a commission basis and usually work with a mobile phone to fulfil banking transactions. The agents play a vital role in the rural credit ecosystem and have been the foot soldiers of the government’s digital push. A waiver will ensure that the benefits of the digital payments ecosystem reach more people and bring them into the blanket of the formal financial system.
Moreover, we feel that a tax waiver will bring down costs considerably and help in scaling the broader sector. The Budget should provide economic benefits via additional tax exemptions and subsidies to improve the economic viability of BCs.
Reduce 18% GST
We think the government should take steps in the Budget to reduce the 18 percent GST imposed on customer charges on small-value cash remittances. We believe key functions such as domestic money transfers should be bought outside the GST ambit or given exemption since it is used by an underserved segment of the population, especially the migrant labour force.
Initiatives like ONDC (Open Network for Digital Commerce) are democratising e-commerce in India and shaping the future of global e-commerce. To encourage e-commerce operations in rural India, the government can offer waivers on GST and TDS to the merchants and consumers focused in rural India.
In terms of the broader fintech space, we feel that a relaxation in the tax regime in the Budget will help the sector immensely. At this juncture, corporate income tax rates and a massive 18 percent GST rate apply to domestic firms, which is high for a fast-moving sector that is scaling fast.
3-year tax holiday to help growth momentum
Multiple estimates have said the transactional value of fintech firms will touch $138 billion by the end of this calendar year. In terms of a new tax policy, a relaxation in the form of a tax holiday for at least three years or a moratorium on tax payment for three to five years will help the sector keep its growth momentum going.
In the rural sector, it is important to frame specific policies that offer startups concessional tax rates, if they work towards the financial inclusion of MSMEs and the rural sector.
Regarding GST, the sector could be exempted or taxed at a lower rate to support growth and scale.
Sops for startups with turnover of less than Rs 10 cr
Concessions could be made available to startups with an annual turnover of less than Rs 10 crores. This will reduce compliance costs and help the companies scale faster and thereby helping the rural economy.
Through digitisation, fintechs could grow and expand across the nation, including rural areas. The sector anticipates more help from the government in terms of the impetus for expansion in rural areas and MSMEs. This is possible with better bank partnerships and offering equal opportunities for online and offline lenders. We believe partnerships and collaborations between online and offline lenders will give the sector more length and breadth to grow.
Ensure level playing field between fintechs, NBFCs
The RBI should have comprehensive and all-inclusive regulations to bring more clarity to fintech firms. We believe better regulation would ensure a level playing field between fintechs and NBFCs. It will enable firms to lend directly to the borrowers and be responsible for them.
The Budget can also take steps to encourage partnerships between banks and gold loan firms to help make gold loans accessible to underserved communities in rural India. We feel that steps or policy decisions to ensure adequate liquidity in the organised gold loan segment will help the broader sector.
Offer incentives to Rupay PPI cards
During the pandemic, digital payments facilitated functioning of businesses, including small merchants. We believe BHIM Aadhaar Pay is the correct market fit for the small merchant. The adoption of BHIM Aadhaar Pay is key for equitable growth of digital payments in rural India. We hope the government offers incentives to Rupay PPI cards/ PPI programmes and low-value BHIM-UPI Transactions.
We also hope the budgetary support for Unified Payments Interface (UPI) is extended to non-bank institutions such as prepaid payment instrument (PPI) Issuers. We hope the government’s plans to set up more digital banking units continue. As mentioned earlier, a collaboration of existing fintech players and banking correspondents which are bank agnostic will help expand necessary universal banking services to the last mile and enable financial inclusion.
We have witnessed significant growth in transactions in bank accounts in rural areas enabled by business correspondents leveraging the Aadhaar stack. We hope the government takes steps in the Budget to leverage the Aadhaar stack for more use cases.
(The writer is Founder, Spice Money—a rural fintech. He tweets @IamDilipModi @SpiceMoneyIndia. Views expressed are personal)
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