India is all geared up to go the GST route in FY 17-18. Every company in India, be it a multinational company or a small/medium enterprise, has geared up for the implementation of GST. The eCommerce sector followed suit in its preparation by focusing on provisions specific to this sector in the GST law. While GST brings ease in the indirect tax structure in India. Therefore several aspects of GST eCommerce Businesses would challenge how it operate. The Government has surely taken note of online as a major channel of trade and has introduced specific laws around marketplaces in GST implementation.
Impact of GST – eCommerce Business in India:
- Much as e-commerce businesses transactions are also undefined in tax laws. In addition the pricing of product, profitability would be more predictable and agnostic to destination of customer.
- Most of eCommerce sector is based on the increasing number of retail entrepreneurs, rather unorganised retail sector. The government has included such players in the ambit of GST eCommerce Business because broadening the tax base and has introduced specific provisions.
Here are some of the key areas of GST that impact the eCommerce sector::
No trade barriers—one nation one tax
There is no uniformity in the tax rates among the different states and therefore every state determines its own tax rates specific to the products. E-commerce operators have set up distribution centers only in certain locations and collect the VAT applicable on sales. Probably the loss of VAT revenue, many states have recently imposed entry tax on goods coming from other states.
Tax collection at source (TCS)
It is mandatory for all e-commerce operators to collect tax at the rate of two percent on the net value of sales. The key purpose of this provision is to encourage compliances under GST eCommerce Business.Most IT companies are registered only with the Central Service Tax authorities and usually all billing and accounting tasks are carried out from a central location.
Increase in credits
The GST law has extended the meaning of ‘input tax’ to cover any goods/services used by the company in the course of business. This has removed the requirement to establish the direct nexus of inputs/input services with the final product/service provided by companies. And VAT on goods and service tax, would avoided under GST eCommerce Business to increase in credits.
Business Process Change
Under the GST regime, service providers are required to registration for the states that they are catering. This is to be done so that the SGST component of IGST is rendered for respective states. IT service providers will therefore have to bifurcate their services and bill their customers based on location of consumption.
Consequently, the GST law may have a negative impact on the e-commerce business. Much as e-commerce sector in India is one of the most rapidly advancing sectors. And the government is vigorously promoting digitised economy, the introduction of such cumbersome compliances cringes the growth of this sector.
Statutory framework introduced by the government should be towards the advancement of business rather than creating obstacles. The GST law finally provide an enabling environment that encourages eCommerse Business.