Why GST May be Shot-in-the-arm that Online B2B e-commerce Needed
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Online business-to-business (B2B) ecommerce has been around practically since the early proliferation of Internet in India, but it has only picked pace in the past couple of years. An estimated INR 19.13 lakh crore worth of B2B trade was conducted online in 2015, according to an industry report.
Initial Apprehensions towards GST
The rollout of GST in July was seen by many operators in the trade — both wholesalers and retailers — as an additional and unnecessary burden. The media coverage in the run-up to the rollout was neutral-to-negative and that contributed to concerns in the trade. However, the dust is settling down quicker than anticipated and the government must be commended for executing a smooth rollout of such an ambitious and pervasive tax reform.
Supply Impacted but Demand Remained Same
Some organizations registered a 40% increase in orders in July compared to the previous month. Although supply was impacted in some categories like electronics, mobiles and computers just ahead of the July rollout; demand remained just the same. Businesses in these categories went slow as they took time to get their tax and accounting systems ready and in figuring out what the post-GST prices should be.
In certain product categories, tax rates have gone up marginally. As a result, there was some confusion on price and on how the retailers will take tax inputs on the transition stock. But these are temporary disturbances and only in select categories. I am confident they will be sorted out soon and business will be back to normalcy.
Has GST Roll-out Been Better than Vat Launch?
As I see it and am further told by manufacturers and retailers on our platform, the GST reform will benefit most businessmen in the long run; particularly those who have been doing all their transactions above board. The reform will make those businesses viable and more profitable, compared to tax-evaders’ businesses. No doubt, there has been a short-term impact; merchants as well as veteran businessmen found the same difficulties as they did when VAT was implemented 20 years ago.
However, veteran businessmen are quick to point out that GST is much better rolled out than VAT. Merchants, including large distributors, who changed their systems in time to make them GST compatible in time, find that the government came out with detailed clarifications on most aspects of the GST reform. They also acknowledge that rolling out GST in a large and complex country like India was not an easy task and considering the sheer magnitude of the change, their problems appear small and manageable.
80% Merchants were Ready for GST
As of early August, the industry by and large has accepted it well. There are many traders who stopped business only for a week towards the end of June, and came right back to business from the 1st of July. Overall, about 80% of the large business merchants were ready for the GST on the D-Day, while about 60% of the small or midsize business owners were ready.
In terms of categories; a large chunk of manufacturers and wholesalers in the fashion, home and general merchandising categories were simply not ready; whereas dealers of electronics were more prepared. It is commendable that the government rolled out GST on the 1st of July; giving the trade ample time to transition before their busiest time of the year – the upcoming festival season.
Few Clarifications Missing
However, there are still a few clarifications that are missing. Some of the earlier rules were impossible to implement. The government has wisely decided to relook and come out with new rules. Regarding certain categories, the transition stock and the input mechanism is not yet distinctively determined. But I am hopeful that the government will come out with more clarity in the coming weeks.
Electronics Merchants Face the Heat
The electronics merchants felt the maximum heat of this transition because prices went up, and they were not clear about tax inputs. In the earlier regime, a 12% excise was a part of the cost to the distributors and the total tax incidence, including 5.5% VAT, came to 17.5%. In the GST regime, the excise has been abolished and there is a single tax rate of 15%. While the total tax incidence is broadly in the same range; the merchant is not clear how can he get credit for the 12% that he has already paid on the transition stock.
Then there is the issue of net impact on pricing, as electronic goods are usually expensive. This category is also extremely price-sensitive; a 1% price hike or reduction on a mobile or pen drive makes a huge impact on the business. The industry is in a wait-and-watch mode.
GST as a Major Growth Driver
The transition to GST was a matter of significant involvement for all players in the B2B ecosystem. About a month before the roll out, we started work on changing our internal systems. We also started educating our merchants, especially the retailers on our platform. In May, we conducted a live video-conference with a GST expert to answer questions and concerns, which was attended by about 2,000 retailers across India. I personally conducted another live video chat on GST that was attended by 3,000 retailers. We have been sending mails, SMSs as well aspush messages through the app to help our community understand GST and its impact better.
Once the dust settles down, GST will be universally seen as a major growth driver for the trade in India. There are some continuing murmurs and complaints, but, at the end of the day, given the size of India’s economy and the sheer number of people in the trade, some teething problems were expected. The good news is that these would not last for long.