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GST IMPACT ON SMALL E-COMMERCE VENDORS

GST Impact on E-commerce

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Posted on
Jun 28, 2017

Having understood what GST is all about, let us look at the implications it might have on e-commerce vendors. Since most of our clients are in the e-commerce space, this will be interesting to read. Read on to find out everything there is to know about GST and its impact on your business. Do share your comments in the comment section below, and let us know what you think.

PROS

1. With GST there will be an easy movement of goods between states. This will be similar to trade in in the European Union, as one uniform tax will apply in all states.

2. GST will remove complexities involved in the current tax system and bring a more transparent system for e-commerce companies. Several states have paperwork requirements for commercial goods being delivered within its boundaries. GST will make logistics for commercial purpose easier. E-Commerce Tax imposed by states will be removed because GST is a destination-based tax, giving benefit to the state in which the delivery is being made. This incentive makes state transactions smooth.

3. When new firms are established they need a VAT registration from the sales tax department of the respective state. For businesses functioning in more than 1 State, the process becomes complex due to diversity in procedures and charges in each state. GST will bring in centralized procedures and registration which applies to all states. This would not only make registration easy but also make business expansion hassle-free and formalized.

4. Currently small business has to pay both service tax and product tax due to the confusion between a product and a service. For e.g. Electronic Book downloads could be a service or a product. With GST there will be a no separate tax computation for service and product.

5. Lastly, the threshold limit for SMEs to get a VAT registration will be increased from the current 5 lakh to 10 lakh. Also, SMEs with a turnover between 10 lakh and 50 lakh will have a lower rate of tax. This is a boon to start-ups and new e-Commerce entrants as they would not have to feel the pressure of the normal rate of tax immediately.

CONS

1. Under GST, they have proposed a Tax Collection at Source mechanism for Ecommerce operators. However, TCS involves a lot of compliance and is only mandatory for e-commerce companies and not offline stores.

2. Under GST there will be higher costs of storing and warehousing. This will burden e-commerce companies because even if the goods are not sold, the company will have to pay the tax and can only reclaim it once the goods have been sold.

3. Price advantage to few states having taxation benefits will disappear. For e.g.: Karnataka has the tax rate of 5% on mobile phones as against 13.5 in Maharashtra. E-commerce takes advantage of this tax mismatch and performs arbitrage. However, under GST this will not be possible.

4. The government has specified a threshold limit for all the businesses, when they cross this limit they will have to register under Goods and Services Tax. But this limit is not applicable in the case of E-Commerce sellers. Irrespective of their turnovers all e-commerce companies are required to register themselves under GST.

5. Lastly, the government has introduced a composition scheme under GST law aimed to reduce the burden of compliance for small and medium businesses. This scheme allows businesses to file returns
Quarterly instead of monthly and pay taxes at nominal rates up to 2%. However, GST law has explicitly excluded e-commerce businesses from this scheme.