The promise of goods and services tax (GST) to improve compliance has brightened the prospect of the online wholesale segment, which has often competed with offline counterparts in a skewed environment as the latter included elements of lax tax compliance.
The promise of goods and services tax (GST) to improve compliance has brightened the prospect of the online wholesale segment, which has often competed with offline counterparts in a skewed environment as the latter included elements of lax tax compliance. This meant that the online segment in the business couldn’t match the margins generated by the offline wholesalers. According to industry estimates, the wholesale market is worth nearly Rs 26 lakh crore annually. Currently, a handful of online ventures are active in the space but corner a minuscule portion of the pie at around Rs 350 crore. However, the online wholesale industry expects to control nearly 10% of the market by 2022, which translates into Rs 6.5 lakh crore annually. “GST will ensure that more (offline) wholesale businesses will come in the tax net, making it viable for us to compete in the same segment,” Devesh Rai, founder and CEO of Wydr, said.
He added that the spurt in the growth in online wholesalers in the last few years was due to stricter enforcement by Centre’s tax department. Industry estimates suggest that only 5% of wholesalers were in the tax net till 2010, which improved to 30% by 2015. “Earlier close to 80% offline wholesale businesses operated in cash while online wholesalers, who had to maintain a digital inventory besides maintaining the books, followed all the rules. But with GST, a lot of it has changed, with offline businesses registering with the tax department,” Rohit Dangayach, co-founder and CEO, Wholesalebox, said.
Although the online segment in B2B businesses is negligible currently, its touted as an untapped segment by e-commerce majors. For instance, Amazon and Walmart, have both invested heavily in their online B2B arm of their Indian entity. Just like online portals have captured retail customers over the last 10 years through a mix of attractive prices, wide range of products and ease of transactions, the same is expected to be replicated for small businesses buying from wholesalers.
“Online wholesalers will allow small retailers to order products without wasting time in scouring wholesale markets as he does now. For many retailers, these offline wholesale hubs are located at a fair distance from their own establishment, which means the retailers need to take time away from his business and worry about transportation of goods he has procured,” Rai said. He added that online segment of these businesses could solve such problems.
Industry insiders say online players can realise their potential with offline and online businesses likely to be on par under the GST regime. “In the pre-GST regime there was little or no compliance as far as offline players were concerned. With GST, offline retailers have gradually started to enter the system. This has led to creation of a level-playing field,” Sahil Sani, chairman and CEO, Just Buy Live, said. Additionally, Dangayach said after GST, margins in his business increased in the range of 25-40% depending on goods sold due to availability of input tax credit.