Tax collection at source would lock in Rs 400 cr of seller money, say e-commerce majors

From left: Amazon's Country Head Amit Agarwal, Snapdeal CEO Kunal Bahl, Secretary General of FICCI A Didar Singh & Flipkart CEO Sachin Bansal

On field, they might be arch rivals, but on Thursday e-commerce biggies Amazon, Flipkart and Snapdeal, came together on one single platform, voicing their concerns over Rs 400 crore of capital belonging to their sellers being locked every year under the GST regime.

Tax collection at source (TCS) recommended in the GST regime which is only for e-commerce companies, has been a major pain point for online marketplaces who see it as the single biggest hurdle in their quest for growth.

Did it take a lot of convincing for Sachin Bansal, co-founder, Flipkart, Kunal Bahl, co-founder, Snapdeal and Amit Agarwal, VP and Country Head, Amazon India, to share the stage and discuss their concerns?

Bahl believes that as the issue at hand concerns the whole sector, coming together was inevitable. "This is really the first time the three companies are coming together on one critical issue. At the end of the day the success of the industry is paramount and respective success of the company comes after that," he said.

According to the Flipkart top boss, around Rs 400 crore of working capital would get locked up every year at the current scale. He added that it would deter small and medium enterprises and sellers from selling on e-commerce platform or go digital in their business.

Under TCS, e-commerce marketplaces will have to deduct a portion of the amount payable to sellers on their platform and remit it to the government.

The draft model GST law is due to be finalised at the end of this month. "We believe we have made a significant difference to the whole ecosystem... There are hundreds and thousands of sellers online and a lot of them are entrepreneurs, some of them are offline retailers... we have come a long way in creating this ecosystem," Flipkart co-founder Sachin Bansal told reporters here at a FICCI event. He added that the e-commerce industry believes GST is one of the most foward-looking tax initiatives and will have a transformative impact on the sector.

"This is apart from the TCS issue. Our estimate is that at current scale, Rs 400 crore per annum of capital will be locked into the system that will not be accessible to sellers and will eat into the working capital of the sellers and will deter them from coming online and listing with us," he said.

The companies said the TCS clause is discriminatory towards online sellers and the same does not exist in the offline retail segment. Also, in the online world, it covers those operating under a marketplace model and does not cover those with an inventory model. The companies contended that the clause, therefore, is detrimental towards e-commerce companies that have brought in billions of dollars of investment.

"All of us are investing ahead of scale and a lot of the investment is going into building the right infrastructure and ecosystem, in training/educating sellers and bringing them online and that attracts consumers to come to our marketplaces. This flywheel has been spinning for the last few years... when the ecosystem gets excited, a lot of other industries benefit," Agarwal said. He added that the TCS would be a "dampener".

E-commerce still accounts for two percent of consumption and is poised grow from $20 billion to $350 billion in 10 years. By 2021, the Indian e-commerce industry is expected to have 1.3 million online sellers with 70 per cent of them coming from smaller towns, creating 10 million new jobs.

Fast facts: e-commerce and GST

* Under GST, all marketplaces and all sellers on such MPs will anyways furnish detailed monthly information returns covering all transactions

* TCS has been proposed under the mistaken assumption that the robust information provided monthly will not suffice for detecting tax evasion

* The reality is different - the monthly returns submitted to GST-N are designed to detect any tax evasion by flagging any mis-match in details provided by the seller and the marketplace. These details can be traced down to the individual transaction level

* Hence, the objective of using TCS to capture information on e-commerce transactions is mis-guided

* Trying to capture the same information additionally through TCS is actually counter-productive - two sets of data will now need to be reconciled, creating additional work and slowing down the entire process