GST – a bane or boon for E-commerce

Technology might have taken over the world by a storm, but it’s a year-old GST that’s taking people for a ride in India. E-commerce sector comprises of the e-commerce marketplaces and the online sellers. Various Electronic Commerce Operation (ECO) players such as Amazon, Paytm and Ola among others, who have established solid ground in online operations through the internet are now making GST registration mandatory for their merchants.

While the previous Indirect tax regime of India was more complex and ambiguous about this sector, the new tax base under Goods and Service Tax Act not only explicitly recognizes the ECOs but has also rolled out specific provisions that have impacted the online merchants. Whether the impact of GST is a boon or bane, is still under deliberation.

A few operational and administrative impacts of GST on e-commerce are:

I.   One of the striking impacts of GST on ECOs is the denial of statutory exemption limit of INR 20 lakhs, which means they are under mandatory obligation to get registered under the GST Act at the very start of business irrespective of their turnover, which could be a disadvantage:

·      With respect to the offline sellers, allowed such an exemption limit

·      For small retailers who are in the process of setting up their e-businesses or starting afresh, as the legal compliances would deviate their focus from the real operations and also add on to their cost of hiring a CA for consultation.

II.   While a few online merchants had opted out eyeing the commercial viability of the online business, many praise the move as it eliminates inter-state delivery hurdle, subsume the entry taxes on e-commerce shipments and enhances sales due to lower taxes in a few categories.

III.   As per the provisions of the Act, both ECOs and suppliers need to register their warehouses as ‘Principal and Additional Place of Business’ respectively. It also adds on to the burden of taxes on stock transfers as any kind of transfer will be regarded as “supply” under the GST Act.

IV.   Interestingly, any post-sale discount given by the online retailers shall be included in the “value of consideration” and hence will attract GST on the same. Therefore, all the discounts and rebates will have to be shown separately in the invoice.

V.   Levy of Tax Collection at Source (TCS) @ 2% of the net value of taxable supplies made through ECO. It means that any suppliers who supply goods to ECOs would get their payment after deduction of TCS @2%.

VI.   Dual effects on inventory costs as taxes will be charged on unsold inventory held in warehouses, as well as lower logistics & inventory costs due to the fewer warehouses. As warehouses would now be located strategically to meet client proximity needs and not be driven by tax consideration.

To conclude, it’s a mixed bag of provisions for e-commerce operators with their respective pros and cons. But, the fact that ECOs are now covered under GST online or offline will help sort the aberrations lurking in the old taxation system.