Goods and Service Tax (GST) will roll out nationwide on 1st July 2017, marking a revolutionary change in the Indian taxation system. Businesses operating both online and offline are already gearing up to migrate to the new tax system and figuring out how to be compliant in the GST era.
#DigitalErra Thought Corner
While GST is surely going to bring about much required standardization in the commerce landscape; in line with the motto ‘one nation, one tax’, there are several aspects of GST that will change how businesses operate.
The Government is trying to simplify the tax structure by introducing GST and promoting trade, while keeping a check on tax evasion. Let’s see how implementation of GST will impact e-commerce marketplaces:
1. Price advantage due to tax arbitrage would disappear
Under the present tax structure, different states impose different VAT rates on the same goods. For example, Karnataka has a tax rate of 5% on mobile phones, whereas Maharashtra has 13.5%. Online marketplaces list sellers who need to charge lower taxes thus making the product cheaper than local retail prices. The e-tailers often enter exclusive tie-ups to take advantage from tax arbitrage. Post GST, there will be standard tax rates for each product and tax arbitrage will not be possible, bringing e-tailers and offline sellers to the same level in terms of costing and pricing.
2. Collection of TCS at Online marketplaces end
Under GST, online marketplaces will have to deduct 2% tax per transaction while making payments to sellers listed on their portal. This Tax Collected at Source TCS) will be handed over as collection towards GST to the government. This rule however does not apply to offline retailers.
3. Unregistered merchants will be weeded out of e-commerce space
While GST registration in normal case is mandatory where turnover is Rs 20 lakh or more, if a trader wishes to sell through online portals he needs to get registered irrespective of turnover. Merchants without proper registration will be forced to move out of the online system. Now, all sellers will be required to be registered and charge taxes at standard rates creating a level playing ground for all online sellers in terms of product pricing.
4. Compliance issue in case of returns and refunds
Majority of the products sold online carry a return date of 30 days which translates to about 15 – 20 million transactions per month and the returns and refunds for these have to be done with utmost care. The returns are required to be filed monthly now by both parties and refund adjustment will need special attention affecting tax liability.
No respite for E-commerce players
- Last month, e-commerce majors such as Flipkart India, Amazon Seller Services and Jasper Infotech came together lobbying against Tax Collected at Source (TCS), and argued that this will encourage more sellers to choose offline channels instead of the online one, and that it will increase the costs of compliance as well as doing business.
- The marketplaces argued that the tax would block much needed capital for 25-50 days besides further squeezing small sellers by placing an additional burden on their working capital.
- According to provisions of the law, e-commerce companies have been mandated to deposit the TCS with the government within 10 days from the end of the month in which the tax has been collected on behalf of the suppliers. The companies also have to furnish an electronic statement containing details of the tax collected at source from their various suppliers with a detailed break up of the tax pertaining to CGST, SGST and IGST.
- These entries have to match with the returns filed by the suppliers to enable the supplier to claim credit for the tax payment made.
- Under GST monthly filings made by e-commerce operators and merchants would mention details of HSN / SAC of goods & services sold by them in each state. This would mean that e-commerce platforms would need to make several GST related tweaks into their system. This includes areas like product catalogue & payment collection, generating invoices on behalf of merchants and readying data for filing monthly GST returns.
Industry experts have welcomed the standardization that GST promises, but it is believed that tax collected at source will deter sellers from listing themselves on e-commerce marketplaces. As an estimate, this clause would lead to locking up about Rs 400 crore of capital per annum for the e-commerce sector which could also result in a loss of estimated 1.8 lakh jobs.