Small firms and homemakers trying to upgrade from neighbourhood sales to e-commerce platforms are facing entry barriers in goods and services tax (GST) rules, hurting their ambition to access a large customer base.
Parity in tax rules between online and offline retailing will allow them to stay in business by reaching out to online shoppers, at a time demand is struggling to pick up after the lockdown imposed to contain the spread of coronavirus, said these entrepreneurs.
Dinesh Batra, who runs Funzoop, a toy-and-decorations shop in Gurugram, said he could not access e-commerce platforms such as Amazon and Flipkart to get orders because his GST registration for small businesses under the composition scheme was not enough.
Online retailing requires a regular GST registration even if the sale is for a small amount, unlike offline sellers who need no registration for sales up to ₹40 lakh a year. Also, offline firms with sales of up to ₹1.5 crore can sign up for a simple tax regime of paying a small flat tax rate on their sales without getting into the complexities of tax credits and are required to file returns only quarterly. This facility is not available to anyone selling online no matter how little their sales.
Online is one of the channels of sale and as long as one complies with all the rules and regulations, it should not matter how a sale is executed, Batra said. “It would be good to have a facilitating ecosystem for online sales as customers will have better choices and sellers will have better market access," said Batra, who has a GST composition scheme registration.
The perception of e-commerce as shopping from a large virtual supermarket is not correct, in the case of small entrepreneurs who access these platforms, according to Mahesh Jaising, partner and indirect tax leader at Deloitte India. This jeopardizes a kirana store’s efforts to reach customers online and the solution is to treat online and offline retailing on a par, he said.
“The ecosystem of GST should be modified in a manner that supports anyone who wants to come onto online platforms rather than discouraging them during the testing times that we are in," said Mahesh.
Making ₹40 lakh the threshold for GST registration and the benefit of the composition scheme applicable to online sales will help boost economic activity, said experts. “In the current covid-19 situation, it becomes even more important for the GST policy to be neutral with respect to online and offline retailing, given that e-commerce platforms offer employment opportunities," said Pratik Jain, partner and leader of indirect tax at PwC India.
The concerns of authorities, while rolling out GST in 2017, were primarily about keeping the compliance burden low for small conventional retailers with a ₹20 lakh threshold for registration, which was later raised to ₹40 lakh.
Another rule that impacts online retailers is the requirement of 1% tax collected at source (TCS) while the e-commerce platform which collects the payment from the final consumer pays the seller, for which credit is given. This tax credit is used by the retailer while making his tax payment. However, many sellers who deal in large-volume low-margin products end up with large amounts of tax credits for which they have to seek refunds.