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Kirana stores going online face familiar tax woes

By Kazim Rizvi and Ayush TripathiWhile the whole nation is going through this pandemic, the central government has been continuously working towards a systematic solution. This crisis has affected critical sectors including hospitality, exports, etc., however, small business and sellers operating in the brick and mortar sphere are one of most hit sectors due to the ongoing pandemic.The restriction in movement and the legitimate fear of people coming out to buy groceries and do shopping has led to the downfall in their businesses. Buying the necessities from online platforms has now become one of the preferred choices for the consumers. With the shift towards the digital medium is trending, the transition for the offline sellers to move online is not smooth primarily due to the disparity in the GST (Goods & Services Tax) model between offline and online selling. It is now the need of the hour to have consistency between offline and online retailing, which will allow smaller retailers to stay in business.Given the fact that Indian retail business has been bleeding losses since the initial phase of the lockdown with the loss of Rs 9 lakh crore till now as estimated by Confederation of All India Traders, it is time to provide them larger access to the consumer base in which online platforms could help. However, the current tax regime poses significant barriers for this transition. The online selling comes with additional monetary and compliance, cost which could act as a deterrent factor for the small sellers.The current tax regime requires the online retailing to have a mandatory GST registration in comparison to the offline sellers who do not need any registration for the intra state sales upto Rs 40 lakh a year with the exception of Telangana and Kerala where this ceiling is Rs 20 lakh. Additionally, the offline traders with the intra state sales upto Rs 1.5 crore can opt for composition schemes, wherein they can file their tax returns quarterly instead of monthly with a significantly reduced tax rate of 1% on the turnover, whereas no such provision is available for the online retailers.Further, in addition to paying the GST and income tax on sales, 1% TCS (Tax Collection at Source) is also levied on the ecommerce transaction against which credit is given to the sellers which can be used at the time of tax payment. However, the sellers who sell their products in large volumes with low margin end up with huge amounts of tax credits for which they have to seek refunds. 77012109In addition to TCS, Finance Act has introduced section 194-O wherein now the e-commerce operator has to deduct 1% TDS (Tax Deduction at Source) on the gross amount of sale or service. It needs to be kept in mind that this TDS is over and above TCS and is effective from October 1, 2020. This 2% upfront tax deduction has a significant negative impact on the working capital for the business having small margins and the refunds for these deductions can take anywhere between around 2-3 years.The downfall in the business of offline traders due to the pandemic induced reluctance to buy from these stores has ensured that the demand of the consumers is met by the online retailers. This is due to the fact that e-commerce operations are considered to be safe and with minimal physical contact. Now the alternative for the offline trader is to move their business online where they will have access to a larger consumer base in addition to the local consumers. However, with these tax barriers in place, it has become difficult for the small retailers to move their business online. The perception of e-commerce as an elite market needs to be changed. The sellers on these platforms include small traders and home entrepreneurs and if the online platforms have to be accessed by kirana stores, there has to be parity between the offline and online sellers. It is the duty of the government to reduce the barriers in order to help the small traders who have lost business due to the pandemic and are willing to shift on online retailing to access a large consumer base.If “atmanirbharta” has to be achieved while the ongoing pandemic, it is important to embrace e-commerce platforms as the engine towards this goal. If this crisis has to be turned into an opportunity, the government has to look both offline and online retailing from the same lens and convert this crisis into a movement towards achieving the Digital India goal. In order to do so, there is a need for a proactive approach in the policy making rather than reactive approach. Rather than waiting for the movement among the small traders against these barriers, the government should themselves remove this disparity between the offline and online selling in order to ensure that small traders could shift to online sale and access to their consumer base. This will help these small traders to earn revenue and recover from the losses they have already suffered. Therefore, making this transition smooth is the most important step towards helping these traders.(Kazim Rizvi is Public Policy Researcher and Founder, The Dialogue and Ayush Tripathi, is Policy Research Associate at The Dialogue.)