What is GST? Is it different for Online & Offline Sellers? Let’s find out!

GST kyon aur iske rules offline and online selling ke liye alag hain kya?

The Government of India levies GST on the supply of goods and services. This means at the point of sale, GST will apply. Before GST, multiple indirect taxes like VAT, excise duty, service tax, other local and state taxes would make life difficult for everyone.

Getting taxed at each stage affects every business person. That is when GST was born.

Before discussing the offline-online seller parity, whether the rules are different for sellers in offline and online space, and the importance of GST, let’s get a brief history of the Goods and Service Tax.

Yeh GST aakhir hai kya?

Prime Minister Atal Bihari Vajpayee set up a committee in 2000 that began drafting the law for GST. After 17 years, on 29^th March 2017, The Goods and Service Tax act was introduced and passed in the Lok Sabha and Rajya Sabha. After a few months, on 1^st July 2017, GST came into effect.

It took a change in 2 ruling parties, multiple prime Ministers, and 17 long years for this tax to see the light of the day.

Under the current GST regime, a tax will apply at each stage. This starts from buying raw materials, manufacturing, sale to wholesaler, sale to retailer, and finally ends with the sale to the consumer. GST is levied on each value addition made to sell the product.

There are 3 sub-categories of GST:

a. CGST – Central Goods and Services Tax:

This will apply to intrastate sales of goods and services. The central government will collect CGST.

b. SGST – State Goods and Services Tax:

This will apply to intrastate sales of goods and services. The state government will collect SGST.

c. IGST – Integrated Goods and Services Tax:

IGST is applicable when a supply of products and services happens between 2 states. The state & central government both collects and share IGST.

Existing Principal Place of Business (PPOB) registration requirement for GST:

The current GST Rules require sellers to register in each state where inventory is held. The registration process involves the submission of 12 different documents and is also time-consuming.

GST Composition Scheme:

The Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore.

GST collections for the financial year April 2021- March 2022:

April – 1,39,708 lakh crores

May – 97,821 crores

June – 92,800 crores

July – 1,16,393 lakh crores

August – 1,12,020 lakh crores

September – 1,17,010 lakh crores

October – 1,30,127 lakh crores

November – 1,31,526 crores

December – 1,29,780 crores

As you can see, for the past 6 months, GST collections have been above 1 lakh crore. Here are the average monthly gross GST collections for the three financial quarters in 2021-2022.

Q1 2021-2022 – 1.10 lakh crores

Q2 2021-2022 – 1.15 lakh crores

Q3 2021-2022 – 1.30 lakh crores

Here, we can also see a gradual increase in GST collections, showing positive growth in the Indian economy.

Are you wondering how the government and the business persons benefit from these collections? Let us find out.

Importance of GST for the government:

The GST collections each month help the government. One way it helps is by reducing the fiscal deficit. Currently, our total expenses are higher than the total revenue. Hence, the fiscal deficit is high. But with increased GST collections, a portion of those funds is used to reduce the fiscal deficit.

Other priorities of the government include the economic development of the nation. Through various measures, these funds are used to boost growth in the Indian economy.

Objectives and Advantages of GST

Business owners and the common man were in a state of confusion during the launch of GST. It took a while, but we know now what the objectives of GST are.

1. One country = One Tax:

As mentioned earlier, multiple indirect taxes were applied.       These taxes affected the business owners because it was akin to a rise in production costs. This was passed to the consumer who would bear the final brunt.

Now, with GST, there is one tax for everyone. This unification of taxes helps businesses sell products in any local and state area. Taxation at the financial year-end also becomes easier as you don’t need to use multiple income tax return forms.

2. Boost in competitive pricing benefits the customer:

The Government wishes to do what is best for the people. Earlier, with multiple indirect taxes, the product prices were costlier. Sometimes, these prices are higher than those found in global markets. Hence, with GST, things fell into place.

With uniform GST rates, one can expect businesses to price their products competitively. This means, as a customer, you will get the best rates available and not the costliest rates. This boost in competitive pricing will benefit customers as raw materials under higher tax slabs push up prices that were getting passed on to the consumers.

You can also read – Here is how going digital can save struggling MSME in India

3. The main goal – To simplify online procedures for ease of business:

Businesses before the digital era managed their business and filed returns offline. These taxpayers had a range of difficulties in filing returns. With the addition of GST, this problem got solved quickly.

GST procedures take place online. Whether it’s registering for GST, generating a bill on sale, or filing for returns, you can do them all online. This promotes ease of doing business.

The harsh reality for small sellers in India:

GST states that it wants to simplify ease of doing business. But for small sellers, this is not true. Small sellers like MSMEs, self-employed individuals, self-help groups, artisans, and homemakers face market entry barriers. This is because of the GST rules. The ones who register have to pay GST returns every month. Failure to file every month leads to a penalty.

But isn’t GST supposed to help these offline sellers?

Why are small sellers facing problems with GST?

To understand the answers to these questions, let us read the current GST rules in India. These will help you learn the troubles faced by small sellers.

Current GST Rules or roadblocks for small businesses to sell online?

1. Sellers with an annual turnover of less than INR 40 lakhs and engage in intra-state sales must get a GST Registration if they wish to sell online.

2. Sellers with an annual turnover of less than INR 1.5 crores and engage in intra-state sales cannot continue with a simplified GST compliance under the composite GST scheme when they wish to sell online.

These rules affect small businesses to grow and sell products online.

But why do these businesses not register for GST?

GST registration for small businesses attracts compliance costs. Although, no charges are levied to complete the GST registration process in case businesses do not complete the registration process, 10% of the amount that is due or Rs. 10,000 will be levied. In the case of tax evasion, 100% of the amount that is due will be levied as a penalty. Every business cannot afford to pay this compliance cost. Hence, most of them end up not registering at all. Such businesses lose out on an opportunity to grow their customer base and recurring revenue. In the end, their growth potential is limited.

A solution is what these sellers need to grow.

Why the government must enable parity between online and offline sellers:

Allowing offline sellers to sell online (with intra-state restrictions)without GST registration helps them save on compliance costs, increase customer base, and grow their business revenue. In this pandemic era, a move will boost many small businesses on the verge of shutting down.

• The Government can grow its taxpayer base, increase GST & Tax collections.
• The customers get more options to buy online from.
• Increase trust and transparency with small sellers

In the end, everyone wins. Hence amending these rules is absolutely necessary.

Recommendations for simplifying GST registration:

There are a few recommendations for simplifying GST registration that can streamline this entire ordeal for everyone.

1. Current exemption from GST registration is for offline sellers (goods) whose annual turnover is lower than INR 40 lakh. This exemption should extend to their online sales as well. This means if an offline seller conducts online sales + offline sales and their annual turnover is less than INR 40 lakh, they do not need to register for GST.

2. Current exemption from GST registration is for offline sellers (services) whose annual turnover is lower than INR 20 lakh. This exemption should extend to their online sales as well. This means if an offline seller conducts online sales + offline sales and their annual turnover is less than INR 20 lakh, they do not need to register for GST.

3. The current GST Rules ask businesses to register in each state where they hold their inventory. With 12 unique documents required for each state, this process becomes lengthy for sellers operating in multiple states. Hence, there is a need to simplify the Principal Place of Business (PPOB) registration requirement for GST for better results.

a. The best way to sort this PPOB requirement in the short term is to reduce this lengthy documentation process. So, instead of 12 documents, cut it down to 1 document and allow 100% online registrations for PPOB.

b. For the long term, allow sellers to get multiple state-level GST identification numbers with a single national PPOB. Doing this can eliminate the need for a principal place of business.

Enabling parity between online and offline sellers for GST registration will benefit everyone. The small businesses, the consumers, and the government will together benefit.

References:

https://pib.gov.in/PressReleasePage.aspx?PRID=1786774