The Impact of GST on E-Commerce Business

E-commerce is a revolutionary concept that has changed the scenario of doing business breaking the geographical boundaries and providing ample convenience to the consumers.

It was not long back that the term e-commerce was unheard of, but today it is posing a great risk to the neighbourhood stores. One of the studies suggests that in December 2016 India’s e-commerce market had crossed Rs. 211,005 crore. By the year 2020, the Indian e-commerce market is expected to generate online retail revenue of $100 billion.

With the uprising of the Electronic Commerce in the country, the conception of many online marketplaces took place. Even the FDIs (Foreign Direct Investments) are allowed by the Government of India to promote these marketplace business models.

Now, with GST (Goods and Services Tax) set to roll out from 1st July, a number of third-party sellers on these marketplaces are sceptical about the compliance requirement that will be required under the new tax regime.

Under the GST, e-commerce segment is extensively covered. Given the potential it has and the amount of revenue that it is generating, the government has taken it seriously and for the first time, it has taken initiatives to regulate it. So far, the online business has been largely unregulated. Since it will be a massive change for the seller community, it is but natural that they are a dismayed and worried lot right now.

Some of the reasons why the seller community seems worried are as under:

  • No Threshold Specified for E-Commerce Sellers: For GST registration, the government has specified a threshold limit of Rs 20 lakhs on the annual turnover of the business. The same stands at 10 lakhs for the North Eastern States. Only if the turnover exceeds this limit, a business is liable to be registered under GST. In case of e-commerce, no such limit is specified and all businesses need to get registered irrespective of their turnover.
  • Benefit under Composition Scheme Denied: There is a provision under section 10 of the GST law to get registered under the composition scheme. Some 8 million taxpayers will be migrating from current laws to the new tax regime. Many of these have limited turnover and don’t have the requisite resources and the expertise required to comply with the new procedures. So, to facilitate these small and medium businesses, government came up with composition scheme. This states that any taxpayer with a turnover of less than Rs 50 lakhs can choose to get registered under composition scheme. Under this scheme, he will pay taxes at nominal rates up to 2% and can file quarterly returns instead of monthly. The irony is that the e-commerce businesses are explicitly excluded from this scheme.
  • Registration To Be Done in Each State: The provisions of GST dictates that the business needs to be registered in each state where it supplies its goods and services. The e-commerce business model works across multiple geographies. Hence, the seller will have to obtain registration in all the Indian states.
  • TCS by the Marketplace Operator: The new tax regime makes it mandatory for marketplace operators to deduct the GST liability of seller as a percentage amount and deposit it with government. The operator will then have to file the monthly return to claim the credit of TCS (tax collection at source) collected, which will have an impact on the liquidity and cash flow of the sellers. Also, the online sellers will be at a disadvantage even with a minimal tax of 2% in thin margin categories. TCS will also make the detection of those who will be evading the tax payment from their online easy.
  • Price Advantage Would Disappear: The major advantage of buying online is that the things were often available cheap due to tax arbitrage. The e-commerce sales happening every now and then used to play on price benefit from merchants in states, which had lower VAT rates. This tax advantage of the online marketplaces is due to take a hit post GST.

The implementation of GST would, however, make shipping across India much easier. As of now, different states have different paperwork requirements for the transit of commercial goods that are being delivered within its boundaries. With GST in place, the logistics for the commercial purpose would get easier and the e-commerce taxes that were imposed by states will also go away as GST is a destination-based tax.

We are just gearing up for GST implementation with lots of inhibitions and concerns. How it will actually impact is still to be seen in the following months.

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