GST for e-commerce – the pros and cons

What is GST?

Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments.

The GST is a value added tax (VAT) which is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It is a tax reform which aims to remove tax barriers between states and create a single market by replacing all indirect taxes levied on goods and services by the Indian central and state governments.

What does this mean for e-commerce and m-commerce businesses?

It’s a boon for online retailers who lean heavily on third-party logistics firms for the transportation of goods to the doorstep of customers. With the GST set to be executed from the first of July, the inter-state ferrying of goods come under a centralised tax regime as opposed to the layered inter-state taxes, the uniform tax will bring down the cost of warehousing, and there would be a move to create bigger distribution centres.

Just think of the elimination of the complexity and confusion of paying different taxes in 29 different states and, subsequently, not having to set-up warehouses in different states to avoid this mess!

The next direct provision is that TCS (tax collection at source), which is set at 1%, can be deducted from the proceeds given to the merchants and suppliers. This is a provision made specifically for the online marketplace and not brick-and-mortars. But many are against this as it discourages retailers from selling online. This is because e-commerce stores are able to price their products attractively owing to differing VAT rates in different states (e.g. sitting in Bombay and ordering a phone from Bangalore because it attracts only 5% tax in Karnataka but 13.5% in Maharashtra). This advantage will be lost under GST. The up side is that it is easier to detect merchants avoiding having to pay tax on online sales.

Can’t dodge the transparency

There is no threshold for SGT registrations. Irrespective of turnover, any business operating some kind of e-commerce activity are required to register under GST and for sellers to register in each state in which they are supplying goods. When e-commerce companies furnish details, it will be vetted and verified against details provided by merchants who will have also registered under GST. Reports of online sales will have to be presented separately from off-line sales, and marketplaces are required to file merchant details to avoid misrepresentation of their books of accounts. All supplies will be captured within the tax system, which, it is hoped, will improve the quality of sellers while paring costs incurred from logistics.

So be aware and take efforts to make your business GST compliant to benefit from it.