By Rameesh Kailasam
I had written in an earlier article (bit.ly/3g2lJVx) that the consumer of tomorrow is a radical change from the past and expects everything to happen with the click of a button or a swipe of the screen and traditional FMCG companies are rapidly evolving using newer, online mediums to reach their customers. There is another important and large segment that is equally trying to evolve, the Micro , Small and Medium Enterprises (MSME) sector and small businesses of India.
Certain positive thrusts from the government are making them go digital while certain regulatory challenges seem to be applying brakes to their pace of adoption, preventing them from jumping on to the digital bandwagon.
India is home to a large number of MSMEs, small businesses, self-employed and household-business entrepreneurs. These engage over 50 crore people (factoring in the livelihoods dependent on them) and are a significantly large contributor to India’s GDP. This micro-entrepreneurial spirit has not only created the largest employment set anywhere in the world but has also kept the economy surging ahead for decades, despite the multiple challenges the country has faced in the past. MSMEs and small/household businesses have been the lifeline of the nation and also a key differentiator in a scenario where everyone strives to work towards a livelihood in an honourable way, helping the country remain civil and prosperous.
MSMEs and small businesses—including household ones, many of which are run by women—are slowly adopting online channels, thanks to the push by the prime minister and the government to go digital, as also the increasing number of emerging start-ups and government initiatives like the Unified Payment Interface (UPI).
Then Gujarat chief minister Narendra Modi, during an address at the Confederation of All India Traders (CAIT) national convention at Delhi’s Siri Fort auditorium in 2014, had appealed to all the small traders of the country to accept technology playing a role in their businesses and go online. He had also stated that we have to accept modern technology. “Even a man from a small town looks for branded products these days,” he said, and exhorted small businesses to go “virtual”.
Many adopted this thought-process and approach over time and found that selling online granted MSMEs and small businesses access to consumers in different geographies, which otherwise would not have been possible, helping them expand their reach and compete. It also helped them achieve scale, driving efficiencies in their ecosystems, and manage their cash flows in an efficient manner; in the process, some of them built some degree of resilience to pandemic-related risks that involved lockdowns, market closures and reduced footfalls.
But many of these businesses today face a regulatory challenge on going digital. Section 24(ix) of CGST Act, 2017, states that “any person who supplies goods through an e-commerce operator, is required to compulsorily register under GST, irrespective of the turnover of such persons”. Accordingly, even where the turnover does not cross the prescribed threshold for GST exemption laid under the GST law, they would still be required to register for the tax and undertake all subsequent periodic compliances.
A majority of the MSMEs and small businesses that have gone online and are on e-commerce platforms currently face challenges due to the mandatory registration requirements that get triggered as soon as they decide to sell any of their goods online, even if their overall annual turnover is well below the threshold of
40 lakh in case of supply of goods and20 lakh in case of supply of services. This puts small businesses desirous of selling online at a severe disadvantage, in terms of additional costs and compliance formalities that kick in. The threshold limits were originally thought through by the GST Council and brought in because small businesses could neither afford nor comply with such requirements.
Many organisations have written to the government asking for a roll back of these requirements. Today, not having a GST number has forced many MSMEs and small businesses falling below the prescribed thresholds to remain ineligible for selling online on any e-commerce portal or application. While several state governments and central ministries are keenly working to bring more and more small businesses on to online platforms, this rule has become a major deterrent and is beginning to take a toll on MSMEs, small businesses, women-run individual businesses and also a large number of traders, artisans, craftsmen, cottage industries and many others.
I had also earlier written a column on how such a similar issue was affecting the travel sector wherein transportation services provided by way of non-air-conditioned contract carriage and stage carriage, which are currently exempt from payment of GST, become taxable merely when their tickets are sold in the online mode.
There is an urgent need for the respective parent ministries, including the MSME one, to revisit these regulations with the finance ministry and the GST Council. An alternative authentication process involving PAN, bank account, etc, must be notified, instead of the GST qualification for on-boarding.
The author is CEO, Indiatech.org