Impact of GST on E-commerceImpact of GST on E-commerce

As per the study conducted by the Internet and Mobile Association of India, the e-commerce market is estimated to have crossed Rs. 211,005 Crore in December 2016, followed by a report that online retail revenue of $100 billion is expected to be generated by the year 2020.

The pace, with which the Electronic Commerce in India has grown, resulted in the conception of online marketplaces. An e-commerce platform owned by the E-commerce Operator inclusive of the Flipkart, Snapdeal and Amazon are included in the marketplace. Scroll down to see some of the features of a marketplace model:

• Allows Third-party Sellers to register and simultaneously selling online on their platform.
• Benefit for the third-party sellers as they gain access to larger customer base that are registered with the marketplace.
• Items purchased by the customers on such platforms/marketplaces are either shipped by the third party seller /merchant or through the well-curated fulfilment centre managed by the Marketplace Operator.
• Such marketplaces charge a subscription fee on the sale value from listed sellers.
• Customers gain access to varied sellers and prices for desired products.

An initiative taken by government to allow foreign direct investments under this kind of model to promote the e-commerce marketplace business:

The emerging dominance of the marketplaces has provided retailers with an additional channel of sales and reaches which was beyond belief for an offline user. A huge section of sellers along with the millions of Stock Keeping Units (SKUs) are affiliated with the marketplaces. Specific to this section, GST has come up with its own rules and regulations as well, since there is a significant increase in the number of sellers and their business.

Issues That are been Faced in the GST Scenario

Key Issues

Higher Compliance Costs:

With the introduction of the Model GST Law, the same casts an obligation on every electronic commerce operator for the collection of tax at source and deposit applicable GST when the payments are to be made to the suppliers. These scenarios will surly increase the responsibility and the burden on electronic commerce operators owing to their large vendor base. Since, the current GST regime considers the e-commerce players as services providers and thus are required to comply with one central services tax -legislation. Under GST, additional compliances will also be required by the electronic commerce operators, in the state where the supplier is located.

Availability of Credit only when Tax is Paid:

The Credit can only be claimed on taxes that have to be paid to the credit of the government.

Tax on the Stock Transfers:

With the implementation of GST, under this model, some of the specific transactions without the considerations would also be treated as supplies. Subject to GST, the Intra-state and inter-state stock transfers, amidst the branches/warehouses of a single e-commerce unit, would be deemed to be supplies; though the tax paid would be available as credit to the entity, hence resulting in cash flow blockages.

Discounts on Pre-Supply:

Discounts at the time of supply or even before that, which are permitted in the normal course of trade practice and reflected in invoices will not be a part of the transaction value.

Discounts on Post-Supply:

Discounts on after effective supply are included in the 'transaction value' only in cases where such post-sale discount, as per agreement, is known at or before the time of supply, and specifically linked to relevant invoices. Under the VAT Regime, VAT authorities are focused on insisting to include these discounts in the assessable value and e-commerce retailers in general, so as to avoid disputes on the charge VAT on non-discounted price.

With the introduction of the regulations requirements, the online seller community has compelled the same to embrace GST regime. Scroll down to check the compliance:

• No threshold for GST registration
• No Benefit under Composition Scheme
• Tax Collection at Source by Marketplace Operator

The government has taken steps to simplify the tax constitution by the introduction of GST & promoting trade followed by keeping a check on tax evasion. Scroll to know how Implementation of GST will impact E-commerce marketplaces:

• Standard Pricing with Standard taxes
• Blocked Working Capital issue faced by Online marketplaces
• Separating out Unregistered merchants from e-commerce
• Compliance issue in case of returns and refunds

Winding Up:

GST may bring greater compliances for e-commerce players, along with this comes significant benefits. The removal of restrictions on cross utilization of credits will show a significant gain in the e-commerce sector. At present, the credit of service tax paid on input services such as warehousing, logistics and commission of marketplace has been denied by the traders, simultaneously the claim credit of VAT paid on goods that are used for providing output services has not been allowed by the service providers. The cascading effect results in a significant blocked unit tax cost for this sector due to the fact that VAT is applicable on the output side, while most input costs are services. But flipping the coin, this will surely result in the reduction of cascading effect of taxes.

In the present scenario, there are differential rates of VAT in different states even for the same products along with the further fragmenting of VAT Rate as well. However, the rates at Central and State Level are expected to be uniform that would ultimately reduce the disputes.