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Effect Of GST On Kirana Shop

by Tandava Krishna


The announcement of the historic Goods and Services Tax aka GST in the mid of 2017 changed the dynamics of business in India. It affected all kinds of businesses but the major concern was showered on the Small-Scale Businesses and rightly so. The investment in small scale businesses is done by those who are daring but have very few resources to call of their own and bringing dynamic changes in such setting calls for trouble in their business and lives. One such small business is the Kirana Shop. The shops that helped us to sustain in our house locked when they were open, risking themselves amid a pandemic, working for us. The rise in the brand and superstore is becoming very prominent in the cities but the local Kirana Store is the ones that come handy in case of emergencies or keeping the customers happy for familiarity and quality but with GST wave has almost sunk the ships of households run on Kirana Stores. There was a rise in various issues in terms of invoicing, record keeping and return reconciliation which is still not solved for many even after 3 years of implementation of the rules.

What are the new things to be done regarding GST?

  1. The Kirana Store owners will have to take mandatory GST registration once they cross the yearly turnover of Rs. 40 lakhs. This includes the turnover of everything from taxable, non-taxable, exempt, etc.
  2. They can opt for a composition scheme as well. GST Composition Scheme, under which small traders and businesses pay a 1 percent tax based on turnover, can be availed by businesses with a turnover of Rs 1.5 crore
  3. The composition scheme includes 4 quarterly returns and 1 yearly return. The total number of returns to be filed will be 5. Here they will be required to pay 1 % of quarterly turnover at the end of every quarter. Here they can’t take credit of GST that has been paid by then and that can’t be recovered from someone. This will be paid from their own pockets. However, this will save compliance costs up to great extent.
  4. Another way is normal GST returns were the Kirana shop owners need to file 3 monthly returns and 1 yearly returns. The total number of returns will be 37. Here, they can take credit for GST that has been paid and also don’t need to pay from their pocket. However, they will have to bear the cost of compliance which is way more than a composition scheme. And there is endless paper-work.

Major Problems faced by Kirana Shop Owners

Compliance burden

Three returns in a month to maintain will make their job harder and they will need to maintain a proper account. This involves a lot of paper-work and date compliance. Missing any of the returns is the liability of the merchant.

Increase in taxes

The GST although sounds great on paper and shows the uniformity amongst the product line but major product rate has been increased to 12% or 18% and thus for a trader, it will be a tax burden.

Technology lag

Until 2015, our local Kirana stores had a billing booklet with Carbonic paper to keep copies. With the rise in digitalization, the billing systems have changed and brought ease to the store owners but it also made our Luddite Kirana store owners very uncomfortable. They were required to stay updated with technology since the way in which accounts are required to be maintained under GST, they can only be maintained if a proper technique and technology are used.

Commerce Understanding

If we go by stereotype, the Kirana Store Owners are prudent people who know how to make a profit but they learned to make a profit by understanding the old taxing system, with new GST, although it sounds simpler on paper it takes a lot of reading and understanding of the system to make a smart move to get their small business running and not be declared a tax fraudulent. 

In the overview, the government when declared the imposition of GST from midnight of 1 July 2017 it failed to recognize when it introduced a tax slab as high as 28% that smaller players were not so far paying as excise duties are so high. These businesses have gone from paying VAT in the range of 5%-12.5% to a GST of 18%, a rate that is highly disproportionate with the revenue these businesses have. The organized businesses with a turnover of more than Rs 1.5 crore were already paying about 24% in taxes, with the combined levy of sales tax, excise, and VAT. For them, the GST has in fact brought down the effective tax they have to pay, or in some cases, only marginally increased them. They are also better equipped to constantly upgrade the infrastructure needed to file numerous GST returns every quarter than a small business. With this move, the small unorganized sector as that of the Kirana Store is discouraged as they fall under the purview of both the Centre and States Government and more or less scrutinized.
Earlier, the majority of the industry was small and exempt from excise, imports were expensive. But now even the smallest of manufacturers pay 18% GST. Import and trading, on the other hand, is much easier. There is no CVD or SAD on exports now, so goods manufactured domestically and those imported have no price difference, making it hard for Small Scale Industries to be able to compete. It’s discouraging customers from buying from Kirana Stores. They’d rather go to a branded store and shell out more money there since they’re already used to paying more for brands. 

In all, the Good and Services Tax which had come with a lot of hope was described by  World Bank’s 2018 version of India Development Update as too complex, noticing various flaws compared to GST systems prevalent in other countries makes us question if the move was for good or it just a hit or miss.

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