Effect of GST on E-commerce
Over the last few years, e-commerce has seen stupendous growth not only in India but across the globe. E-commerce industry is expected to receive further boost by Prime Minister’s recent commitment to Digital India campaign and Start-up India campaign. While on one side the government is trying to encourage start-ups using electronic platform, various taxation and regulatory issues have emerged as a big hurdle in the unfettered growth of this sector.
The ‘one-market’ tax structure to be implemented under the proposed Goods & Services Tax (‘GST’) regime may resolve many issues. Simplification of tax structure and free flow of credits as envisaged under GST would result in cost efficiencies for online marketplace companies as well. Further, since GST envisions a unified market, it may mark an end to diversified state specific waybills and transit forms for interstate movement of goods. Also, with hopefully consistent state GST slabs across various states, warehousing strategies should no longer have to be based on tax related parameters.
While taking a note of the possible benefits that may unfold under GST, it is too ambitious to expect that GST would turn out to be a one-step solution for all issues currently being faced by the sector. For instance, even under GST, the tax authorities might hold the online marketplace companies accountable for any revenue leakage on sales made through their portal. In case the law makers choose to take an aggressive approach and levy dual taxes on online marketplace companies – for sales made through the portal as well as for commission charged from dealers, online marketplace companies would once again be caught in the same quagmire of multiplicity of taxes, multiple registrations and compliances.
Moreover, unlike the present taxation regime which requires businesses to pay taxes in the state from where sales take place, GST is proposed to be a destination based tax. In other words, GST would have to be paid in accordance with the legislations applicable in the state where the consumer is located. Consequently, online marketplace companies may have to undertake complete overhauling of their existing supply chain leading to additional costs for them. Also, the expected median rate under GST is higher than what presently applies on online marketplace companies (service tax of 14 percent). This may have a bearing on the working capital requirements of their businesses.
While it is important to ensure appropriate collection of revenue for the government, it is also important that GST laws are framed in a manner that they don’t prove to be detrimental for the booming e-commerce sector. Therefore, the law makers should try to safeguard the revenue interests of government while ensuring a conducive business environment for online marketplace companies in India. However, at this nascent stage, unfortunately even the tax laws on e-commerce in the international arena are not mature enough to set standards in the Indian context.
Source :- http://www.moneycontrol.com/