GST is a complex system and some aspects of its regulation and implementation are not well understood yet.

Will the massive challenges of GST outweigh its benefits for Indian ecommerce
Atom GST Saturday, June 03, 2017 - 18:21

There’s hardly a month left for the July 1 deadline as the whole country is gears up to embrace the Goods and Service Tax (GST). So far, 18 states have passed the SGST bills in their state assemblies. After missing its previous deadline, it seems like the landmark change in tax regime might just be a reality by July 1.

But even as the deadline inches closer, there is still a lot of ambiguity in what it entails for several sectors. And one of them is the ecommerce sector.

In India, the ecommerce sector market is estimated to have crossed two lakh crore rupees in turnover by December 2016. And this rapidly growing industry works on a marketplace model with companies having minimal or no inventory. In such a situation, their business comes from the products sold by the sellers on their platform.

Compliance and threshold

To begin with, the threshold limit set for businesses for GST compliance does not apply for ecommerce sellers. All businesses with a turnover of over Rs 20 lakh will come under the GST regime, and they will have to register compulsorily. However, according to ClearTax, no such limit is applicable for ecommerce sellers. Irrespective of their turnover, every seller has to register themselves under GST.

Further, GST compliance will come at a cost. While it will not be much of a cost for bigger sellers, smaller sellers will stand affected.

“The biggest challenge is the ambiguity around certain aspects of regulation and responsibilities. GST is a complex system and some aspects of its regulation and implementation are not well understood yet,” says Arun Goel, VP - Product Management, ShopClues.

Sanjay Thakur, president, e-seller Suraksha, a forum for online sellers, says that GST will be tough for small sellers. “They will have to go through a lot of compliance. Returns invoices will have to be filed regularly. But we will only know for sure once it is implemented. For now, there is no clarity on how it will work,” he adds.

While GST is being implemented, a lot will also ride on how ecommerce players support their sellers with the transition. ShopClues, for example, is looking at helping sellers with filing return through its platforms and avail credits they are entitled to. “In the cases of merchant businesses where the margins are low, compliance costs and TCS will put additional burden on cash flow and working capital of merchant’s business. However, in order to alleviate merchants from this burden we provide merchants with working capital loans and services as well,” Arun says.

Tax collected at source

Tax collected at source (TCS) has been another major pain point that has been a subject of debate for a while now. The actual impact on small sellers will be linked to what the final rate of tax, or TCS, will be, says Divyesh Lapsiwala, Tax Partner (GST) at Ernst and Young (EY). “If the TCS is high, then small traders who earn wafer thin margins may face challenges in selling through these platforms as it will lead to TCS higher than tax on margins. There have been requests to the government to keep TCS rate low so that while every transaction gets captured, the trader doesn’t get impacted,” he says.


Another major point of contention is the requirement of registering in every state for GST. Ecommerce companies will need a GST Identification Number in the state of origin of trade as well as the destination where the item will be consumed. The purpose of this is that the whole chain of transaction is recorded and can be accounted for.

According to Economic Times, ecommerce players are talking to the government to try and save themselves from having to register in all 29 states and seven union territories. A Flipkart executive is reported to have requested Revenue secretary Hasmukh Adhia to facilitate a single-point registration instead of in every state.

Divyesh also says that while this has been a bone of contention, hope is that the government will clarify that ecommerce companies don’t need to register in every state. “If the objective is to collect tax from every seller on the platform and pay to the state where the seller is located, this can be done from one state where the platform is, and doesn’t necessarily require registration in every state where the seller is located,” he adds.

ShopClues says that it is working with all third-party logistics (3PL) partners to hash out details and implement a system that would help make its merchants and 3PL partners compliant from this supply-based invoice requirement. It will be releasing this system soon. And being well-prepared, it feels like this would cause little hindrance to its business as usual.

This is something Divyesh emphasizes on as well. That there needs to be a level of effort put in by the industry to embrace the new tax regime.

Any change at this scale comes with its challenges. But many feel that when one looks at the larger picture, benefits outweigh the challenges. Sanjay agrees as well. And so, do ecommerce players.

An Amazon spokesperson said that GST will eliminate hurdles in inter-state delivery and include entry tax introduced on e-commerce shipments by some states. “We are studying the GST developments and currently our priority is to enable our systems to be geared up for compliance with GST regulations. We look forward to simplified implementation of the rules to improve ease of doing business for our sellers and serving customers even better,” the spokesperson said.

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