The goods and services tax (GST) is affecting home service startups as they face the challenge of retaining service providers — carpenters, plumbers, electricians and cleaners — on the platform.
Though blue-collar workers’ annual turnover is far below the Rs 20 lakh threshold, they have to pay GST at 18 per cent (service tax) as they are sourced via internet platforms.
Owing to the burden of extra tax, such service providers are breaking away from internet platforms and going back to the traditional way of business, where they get jobs based on word of mouth and are usually paid in cash.
At the same time, internet platforms show their helplessness as they can’t afford to absorb the tax of service providers, which will affect the former’s business startegy.
“In light of the current major disparity between online and offline sectors, service providers are required to pay a staggering 18% GST if they operate in the online world, unlike the offline world where they do not need to pay the same,” explained Housejoy CEO Saran Chatterjee, talking to ET.
The industry players have expressed their discontent over the government’s decision and said that the taxation scheme discriminates between the two delivery models, much against the government’s own objective of formalising the economy and digitisation.
“Platforms like UrbanClap help service professionals become micro-entrepreneurs, multiplying their earnings, while providing a safe, convenient platform for customers,” said Abhiraj Bhal, Founder, UrbanClap.
He added the platform also brings much-needed organisation to this grey sector, with KYC (know-your-customer) norms, standards… One can argue that this is a case of online-offline disparity.
More than 100,000 service professionals, mostly individuals or very small businesses, are part of online service aggregators. Industry expects this to cross 1 million by 2020.
“A differential taxation regime is, in the long run, a lose-lose for everyone — customers, service professionals, and the government,” said Bhal.