Review on the Impact of GST on E-Commerce in India

Marking a landmark change in the Indian Taxation system, the Goods and Services Tax (GST) which came into effect on July 1, 2017, has impacted businesses small and big in numerous ways. Its impact on the e-commerce is significant because of the changes in the tax structure for the e-commerce sector. One sees considerable growth in this sector that has compounded the tax issues.

Ease of use due to one tax alone

Use of online billing software will reduce the effort needed to keep your accounts up to date. One thing that the ‘one nation, one tax’ has brought about is standard pricing. GST replaces 17 indirect taxes and brings into effect one tax alone. This will have an effect of reducing costs. However, this will impose dual control over the goods by the centre and the state.

Since the tax rates are the same, it helps to make all retailers bill their products at the same price. Some people see this as the loss of control by the state over the tax rates. Also, retail businesses do not like this since their costs will increase. This is because it is mandatory for the e-commerce sellers to get registered and they will have no threshold exemption. Even aggregators are required to be registered under the GST. Aggregators are those who supply service that anyone can access.

Capital is locked up

There is a blocking of working capital for online marketplaces due to the collection of 2% transaction tax deductable from sellers listed on the marketplace. This is the Tax Collected at Source (TCS) which goes towards the GST. Offline retailers are not constrained by this TCS. The capital remains locked away for 20-25 days since the TCS must be calculated and reported. Use of the online billing software reduces the need to run around and organise things. The software will take care of everything.

If you do not register yourself as a merchant under GST, you will not have any e-commerce space where you can operate. Normal mandatory case for GST registration for a merchant is a turnover of Rs 20 lakh or more. Now, if they want to sell online and expand their e-commerce trade, they have to get their registration done.

Filing awaits the returns and refunds

The other big worry is due to the compliance issue for returns and refunds. Since every product carries, in normal cases, a return and refund period of 30 days, the merchant has to wait for 30 days on each of the items he sells. These could be something like 10-15 million transactions. Under the new rule, both parties must file returns monthly and the refund adjusted for the tax.

One of the deterrents for sellers to come and list themselves as e-commerce sellers will be the standardisation that GST brings in. By the year 2020, the e-commerce sector will have crossed the $100 billion threshold. The challenges it faces are shrinking profit margins, rising competition, and so on. It is undeniable that GST has brought much standardisation in the commercial sector. However, much more needs to be done if there is to be significant advancement in the e-commerce front.


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