Business correspondents hope Budget 2019 to do away with GST on fee income

The government has been taking pride in its measures aimed at improving the financial inclusion. However, a key issue around Goods and Services Tax (GST) has become a pain point for Business Correspondents (BCs) in this space.

BCs act as an intermediate between the bank and a poor borrower, who is in need of micro-credit. Today, these BCs need to pay GST on their fee income, which they argue is an anomaly and should be done away with. The BCs that Business Today spoke to were all opposed to GST. Strongly opposing it was Dr L H Manjunath, executive director, Shri Kshetra Dharmasthala Rural Development Project or SKDRDP in quickspeak, which is a leading Bangalore-based BC. He said: "There is no GST on banking services in the country. If you open a bank account and avail its services, there is no GST on that except in cases where you are taking an instrument like demand draft or money transfer.

Check all the exclusive stories on Budget 2019 here

However, the poor, as we know, cannot approach a bank for loans and approach a BC or a BF (Business Facilitator), which connect them to banks. BCs and BFs collect a fee for this because they have to run the business but it is being taxed and it is a hefty 18 per cent GST." He explains that the poor borrower approaches a BC because he or she cannot access the bank. Most BCs are not-for-profit entities and cannot absorb the GST and as a result it is passed on to the end borrower."

Giving an example of SKDRDP, he says, ''we are working with four million clients and our monthly BC income is to the tune of around Rs 30 crore. On this, we pay 18 per cent GST, which amounts to nearly Rs 5 crore to Rs 6 crore, which is not a small amount. At a macro level, he says, it is quite a huge sum and poor people have to end up with added burden and in a sense paying a price for not being able to access banking services directly." He calls it a clear anomaly, which needs to be corrected.

What is important to note is the fact that this is not a small section. Today, there are an estimated 200 large BCs like SRDRDP in the country and several hundred small BCs and BFs. The total number of large and small BCs would come to around 1000 or so. Today, a poor borrower pays interest rates in the region of 16 per cent to 22 per cent, depending on which BC he approaches. SKDRDP, for instance, charges 16 per cent. The GST levy on BCs roughly translates to an imposition of an additional one per cent levy on the poor borrower.