By Anil Bhardwaj
The Covid-19 pandemic has dealt a severe blow to the MSME sector in India, which contributes roughly 30% to our country’s GDP and employs over 110 million people. The lockdowns imposed to curb cases of Covid-19 led to a major shift in consumer behaviour across India, as fear of infections discouraged people from going out, and the comfort of buying online from home started taking preference.
The Retailers Association of India, in its latest survey, reported that retail sales have started to recover across, but they are still 52% less than the same time last year. On the other hand, e-commerce sales have surpassed their pre-Covid-19 levels. In fact, e-commerce sales had reached about 90% of their pre-Covid-19 levels as early as in July. This recovery shows a promising way out for Indian MSMEs who are struggling in retail markets.
The potential of e-commerce for MSME revival encouraged us to consider the aspects that can possibly discourage an MSME from digitisation. To revive the MSME sector, an all-out approach is needed that leaves no stone unturned—the tax policies for MSMEs selling online is one of those stones.
A cursory glance at the provisions in the GST Act for online and offline sellers would underscore the significant lack of parity that online sellers have to deal with. For instance, an MSME selling online will have to mandatorily get GST registration, regardless of its revenue.
However, an MSME selling in offline would be required to get that registration only after crossing a revenue threshold of Rs 40 lakh. When it comes to services, threshold exemption is given for online sellers/service providers. So if there is a disparity, there is a differentiation that has been created between the seller of goods and the supplier of services. So the question arises as to why should sellers of goods not enjoy the exemption that is there for services or offline sellers of goods?
Another barrier for MSMEs falls under the Composite GST scheme. This scheme is a relief for MSMEs, which allows lesser compliance, limited liability and higher liquidity. However, the scheme prohibits a composite GST trader from selling goods online. This provision seems unjustifiable, and is also unfair for composite traders, restraining them from leveraging online marketplaces.
These regulations, and additional ones such as registering every warehouse for e-commerce sales as an ‘additional place of business’, deduction of TCS by marketplace operators, etc, create an unpleasant experience for online sellers. It forces them to spend money and resources on compliances, which can be better used for product innovation and business development.
From a tax policy standpoint, it can be said that there is a lack of acknowledgement from the government on the fact that onboarding of MSMEs onto digital platforms is a win-win situation.
Previously, it was for consumer demand, optimising internal operations, getting edge over competitors, and so on. But now with Covid-19, MSMEs have to go digital in order to survive. Access to goods and services through electronic medium has become a new necessity.
To bring the Indian MSME sector back on track, we will need to make bold policy changes. We should start with creating parity in tax policies for online and offline sellers, allow composite GST traders to sell online and simplify ‘additional place of business’ requirements.
As we move closer to Diwali, MSMEs and retailers will find promising prospects in online marketplaces, and we need to aid their transition to these platforms. By eliminating harrowing registration requirements for MSMEs, such as registering on a per-state basis, we can significantly ease their online transition.
We also need to realise the potential of e-commerce for aiding the revival of Indian MSMEs and create a regulatory environment that encourages MSMEs for digitisation.
The author is secretary general, FISME