Rationalize Paypal/Payoneer & GST Rules For Indian Freelancers Working Online
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Dear Indian Outsourcer,
All exporters (even for service, and no matter how small your turnover is) are required to register under GST. So if you haven't registered yet, please contact your financial adviser (Chartered accountant) and find out what compliances are necessary for you.
We welcome the arrival of GST in India and look forward to a better tax regulation. However, irrational regulation and lack of proper framework is causing a unique problem for Indian service providers who work for entities outside India. Read on to find out more
The honorable Prime Minister of India has asked each and every citizen of India to become a job producer. To be entrepreneurial, to create employment for themselves and also provide employment to their fellow citizens.
It's a great vision and one of the biggest tribe of people who have been a part of this vision from a long time, are the online freelancers and outsources who have been working online for foreign entities as writers, designers, marketers, programmers, virtual assistants, researchers, and other such skilled service providers.
There are at this time nearly 15 Million individual freelancers and small companies according to this article from Payoneer (http://blog.payoneer.com/freelancers/industry-tips-fl/indias-freelance-economy-is-booming-in-2016/
Online workers generate hundreds of millions of dollars every year in foreign exchange for India, and this number is expected to grow more as more Indian professionals get skilled and come online to work in an International market.
In fact, this is going to the most dominant form of employment system in the years to come worldwide.
Online service provider are not only employing themselves, but also providing employment to millions more, generating precious foreign exchange and creating an environment from which many successful startups and businesses will emerge.
Yet, today we are facing a unique situation which is creating confusion and serious problems for this fast growing community of professionals.
Lack of Clarity on GST and Paypal/Payoneer payments
Paypal is the primary payment system used by people outside India to pay freelancers and service providers they recruit online. Any kind of direct contract between a provider and his employer will use Paypal as payment system in nearly 99% of the cases.
Same things apply to Payoneer too.
There's no alternative to Paypal, and if Indian providers are forced not to use Paypal they will become noncompetitive in comparison to providers from other countries. Some people use Payoneer as alternative, which also has SAME restrictions.
As per the GST guidelines, any exporter of products and service is required to register under GST and given an exemption from paying GST on the export turnover.
The Goods and Services tax department demands FIRCs (Foreign Inward Remmittance Certificate) from exporters to prove the export income.
While this is viable for bigtime exporters who do huge amount in exports, and get bulk payments, it has created a logistical and profit nightmare for Indian service providers who use Paypal (To which there is no viable alternative).
The reasons are
#1 Paypal transfers balances daily to account holders bank, and does not retain balance. (Same with Payoneer)
#2 They use Citibank as their intermediary to process the foreign exchange, and the amount is sent to the Indian account holders in INR.
#3 To get FIRCs, freelancers have to apply through their banks, to Citibank, requesting them to give the FIRCs at the cost of Rs. 200 (+18% tax) per instance. In Payoneer's case it's ICICI and similar structure.
For a typical freelancer who takes odd jobs every day, and has a regular ticket size of $25-$250 per job, he will have at least 10-12 jobs a month, and the payments will be spread over several days for different milestones.
- Typically a freelancer will get 200 to 320+ payments a year depending on how many clients he takes up, how many milestones he gets paid in, and how many chunks of payments he gets.
So they are looking at a minimum yearly expense of Rs. 47,200 to 75,520, even if all things are done as described.
PROBLEM : It's very hard to get FIRCs through banks from Citibank and definitely costs more than Rs. 200.
In my own discussions with officials from Citibank, and my own banks, nobody had any information or clue.
Our own banks do not have any info on processing FIRCs this way. They say they can give FIRC only for the remittance processed through them, and in fact when my bankers approached Citibank contact, they had no idea what this was about.
Those who have already registered under GST have no way to file for exemption without the FIRCs which means they cannot even meet the terms of government compliance.
This can result in unfair penalties and prosecution for no fault of theirs.
IMPORTANT : The RBI has restricted Paypal from accepting payments for domestic transactions. That is, no one from India can pay another person in India through Paypal.
Thus in practice, all the payments received by Paypal are international payments without exception.
However, if you're a freelancer who's working online and you've ever been paid through Paypal, you will be required to either file FIRCs (Which are near impossible to get in my own experience), or you will have to pay 18% GST from your own pocket even while you're exporting and legally exempt.
SOLUTION : Please sign this petition and urge the Indian government to remove the requirement for FIRCs for Paypal payment. Instead bank statement that show payment from Paypal and Paypal statements should be enough to consider these payments as International remittance.
There's absolutely no chance of fraud here because as explained earlier, Paypal payments are not possible India to India.
ACTION TO DO : Please sign this petition, explain your point of view and tell your friends and colleagues who will be affected.
Contact your bank asap, and ask them about getting FIRCs from Citibank if you get payments from Paypal. Refer to the document here - https://www.paypal.com/in/webapps/mpp/firc-certificate
If you find that they are unclear, and don't have specific info, do share in comments what you learn.
SIDE NOTE : While the government reviews this, we also urge the RBI to consider relaxing the restriction on Paypal which is really locking down many opportunities for Indian businesses.
A lot has happened since 2011 when this restriction came into place and India needs to have a competitive and comparable banking atmosphere to the International standards in order to be competitive with countries like Philippines, Eastern European nations, Bangladesh, Pakistan, Srilanka etc, who are competing for the online service provider business pie.
Unchain us RBI & GoI!
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