New Delhi: India’s FMCG distributors, under the All India Consumer Products Distribution Federation, which has over 4.5 lakh members, said Friday that it “strongly opposes the proposed Merchant Discount Rate (MDR) on UPI transactions, citing that any additional transaction costs will impact millions of small retailers, distributors and low-margin businesses.”

In a letter addressed Prime Minister Narendra Modi on the matter, the association noted that the “burden of UPI financing should not fall disproportionately on traders, and be evenly distributed between consumers and manufacturers”, and urged the government to reconsider retaining UPI as a zero MDR payment system for merchants.

The association urged the government to address the implications of calculating the merchant discount rate on gross payments and resulting cascading tax incidence. It said in its note that FMCG retail and distribution businesses operate on very thin margins, hence a 0.4% MDR can represent significant erosion of actual earnings.

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“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,” it said. It urged the government that “retailer-to-distributor and distributor-to-company UPI payments should remain completely exempt from MDR.”

AICPDF National President Dhairyashil Patil said in the note that UPI’s “universal acceptance must be protected.”

It additionally sought clarity on a Rs 1 lakh threshold applicable to small merchants, citing that once a merchant crosses the Rs 1 lakh monthly UPI receipt threshold, it must be clearly established whether MDR applies only to the amount exceeding Rs 1 lakh, or to transactions undertaken after the threshold is crossed, or to all transactions during that month.

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The association added in the detailed note that appropriate relief be considered from GST on MDR and payment-service charges, particularly for low-margin small retailers and distributors.