New tax a pain for India’s small e-merchants

Thousands dropped from e-commerce sites because they can’t meet GST requirements

India’s new tax regime is causing widespread headaches for small merchants and the e-commerce companies they work with.

The Goods and Services Tax, which went into effect July 1, has been touted as the biggest tax reform since the country’s independence seven decades ago, aimed at replacing hundreds of regional and federal levies with a standardised national tax. But retailers are discovering the new system is anything but simple. They’re battling a dizzying array of documentation requirements and product classifications, which affect the percentage of tax charged, that threaten to choke businesses with bureaucracy. Thousands of small merchants have been dropped from The rate of GST varies depending on the product and service, ranging from zero to 28 per cent, as well as numerous exemptions. For example, fresh milk doesn’t incur GST, cream attracts a 5 per cent rate while butter and cheese are charged at 12 per cent.

While merchants didn’t always comply with their tax obligations under the old regime, the consequences of not filing proper returns now are dire. Penalties range from fines of Rs10,000 (Dh570, $155) to five years in jail. Those with large amounts of tax due will not be eligible for bail. e-commerce sites because they can’t meet the new requirements.

Seller Archit Agarwal is still struggling to get the new rules straight after months of preparation. The owner of A2A Trading sells imported wireless headphones on Amazon. com Inc’s local site, but he’s scrambling to figure out how his existing warehouse stock should be taxed, how customer returns should be handled and how detailed record-keeping should be. In August, he’ll start filing three sets of monthly tax returns.

“The new system is overwhelming,” said the 32-year-old just days after the GST was put in place. The harried Agarwal was heading into a low-rise building in Bengaluru to one of Amazon’s 16 pop-up GST CafA (c)s. A sign outside advertises “Get GST compliant and sell online chintafree,” and dozens of sellers have come to offload their ‘chinta,’ or worries, before the online giant’s panel of taxation experts.

In the past weeks, e-commerce companies big and small have bounced thousands of non-compliant sellers off their websites. Some small businesses and restaurants have voluntarily dropped out because they can’t meet the new requirements.

Flipkart Online Services Pvt, the country’s largest online retailer, said “close to 95 per cent” of its 100,000 merchants are compliant, but the rest were removed before the GST kicked in. Rival Amazon said it would retain nearly all of its 200,000 merchants.

“Small e-commerce businesses are getting knocked out by GST,” said Ravjeet Singh of the Delhi-based MS Trading Co., which sells men’s T-shirts on both sites. “The changeover is complicated and the penalties for not paying timely taxes are so harsh that people are scared.”

Mumbai-based fashion ecommerce start-up Fynd said its sellers complained that the GST website had stopped taking registrations and was down, a sign of upcoming trouble. The site has dropped almost 10 per cent of its 330 sellers.