A couple of months back GST on “eating out” was lowered to 5%. In spite of being aware that it was possibly done on the basis of sound technical knowledge, I was shocked to find that the lowering meant pizzas sold by large multi-national companies and consumed by the very rich were taxed at 5% while data, proportionately more expensive for the poor than the rich, was taxed at 18% as were voice calls. Earlier, telecommunications consumers paid 15% service tax plus cess on the bill. Post GST, one has to pay 18% for data and call bills. Thus, in terms of expenses, a data pack of Rs 100, that earlier provided data services worth Rs 85, now provides services worth Rs 82 only. This, in a country where rural internet penetration is a mere 20% and data cost is significant. Universal access, rural access are the key pillars of Digital India, but if access continues to be expensive for lower sections of the economic strata, none of our larger goals of Digital India would be achieved.
So, funnily, while you pay 5% for pizza, you have to pay 18% for the services of an online food aggregator that helped you order it! Same is the case for a health-tech or an edu-tech company. Services provided by educational institutions to students for primary and pre-primary levels are tax-free while technical aids for education, vocational training and teaching and learning aids are taxed at 5% under GST. In contrast, digital services like those provided by edu-tech companies are taxed at 18%. Similarly, a doctor’s consultation at a physical clinic is tax-free, but teleconsultation services provided via health-tech platforms attract a 18% tax rate.
The disparity in GST extends to compliance burdens as well. Thanks to the three-tiered GST schedule, these online platforms have to register in all states to deposit taxes. Thus, an emerging start-up looking to aggregate sellers online has to register in multiple states and undertake the burden of periodic filing in each of these states, because it provides a pan-India service! The original GST Act asked for monthly filing, which meant a start-up would have had to file three sets of details, for CGST, SGST and IGST, in 36 jurisdictions (29 states and 7 Union Territories), resulting in 108 filings every month, and 1,296 filing every year! An amendment in November reduced filing compliances for small businesses (aggregate annual turnover upto `1.5 Crore) to each quarter, which means small online businesses only have to file 432 filings every year. This alone can be the biggest bottleneck for an emerging company, and definitely makes doing digital business in the country more difficult.
Online marketplaces now have the additional burden to collect and deposit 1% tax on behalf of the sellers across states as well. While real estate conglomerates build shopping malls, they are not supposed to collect tax on behalf of the shops that operate from these malls. But technology platforms are supposed to do so. Today, e-commerce is one of the most popular services with numerous start-ups focusing on different verticals. These small start-ups provide a digital platform for sellers to reach buyers and are themselves not engaged in the process of selling goods. The provision of tax collected at source (TCS) is supposedly to ensure greater transparency and to check tax avoidance by sellers. The irony is that e-commerce, by its nature,is a more transparent mode of transaction as it generates a digital audit trail (including invoice and trail of revenue flow) for even the smallest of transactions.
Even in cases of COD, the cash collected is deposited to the sellers account which can well be traced. This is in sharp contrast to physical selling where cash transactions without invoice generation is still possible. All online marketplace providers have readily agreed to share information of transactions on their sites with relevant tax authorities, that includes the TAN/GSTN of the sellers and associated bank accounts to which the transfer is made, thereby allowing authorities to trace the sellers for every small transaction. Unfortunately, the transparency of e-commerce is being used by authorities as an opportunity to pass on the responsibility of collecting taxes to online platforms.
Also, a small-scale online seller, whose annual revenues are lower than the taxable threshold, too, will have to register under GSTN and will have 1% of its revenues deducted as tax for every transaction conducted online. This alone is a big disincentive for small-scale sellers to conduct businesses online. E-commerce has globally been recognised as a tool of empowerment for small-scale producers and sellers. However, the TCS provision under GST seeks to rob petty sellers of this tool. Finally, it may be noted that the digital industry has so far neither claimed nor got any exemption in direct taxes. Service tax was lowered in 2009-12 period in line with many other service sectors. It is, therefore, suggested that the government shouldn’t deal in such step-motherly fashion with this emerging industry, and instead promote it.
– Shubo Roy (President, IAMAI)