The e-com industry is booming ever since it ventured into the Indian business industry. Unfortunately, it has to deal with a very complicated taxation system. There are all kinds of indirect taxes levied by both the State and the Central government. The digital payment systems such as e-wallet and credit card/net-banking, etc. also add more woes for the dealers/operators. However, this will change soon.
From 1st July(tentative), the government is going to replace the current taxation regime with a new GST regime. This is expected to bring a number of significant changes that will not only make tax calculations easier but also bring transparency in the entire system.
If you are a merchant who is selling goods/services online, then you are required by the GST law to get your registered irrespective of your turnover. But there’s more.
In this post, we will learn about how the GST will impact the e-commerce industry specifically.
Elimination of Tax Arbitrage Advantage
In the current taxation system, the rates of several taxes such as VAT vary from one state to another. For instance, the rate of VAT on mobile phones in Goa is 12.5%, but in Kerala, it is a modest 5%. So, the merchants based in Kerala can offer low prices to their customers on the e-commerce portals and have an arbitrage advantage over others.
With the implementation of GST, however, all the states will have to levy the same tax all across India. Thus, no merchant will be able to get an unfair advantage on the pricing over others.
Faster Delivery of Shipments
The supply chain of the e-com industry is today crippled by a variety of regulations and compliances that not only make transportation of goods complicated but also lead to huge delays. However, with GST the process is expected to become a lot smoother. E-com operators will be able to deliver the goods to their customers faster, mainly because of the elimination of tax collection at the check posts which cause long queues today.
Easier Identification of non-Complaint Merchants
Once GST is implemented, it will become almost impossible for the merchants to misrepresent their sales. This is because they will need to report their sales online through a common portal. They will need to file the report on a monthly basis along with the GSTIN of their aggregator (owner and manager of the online portal such as Flipkart, Snapdeal, etc.). Even the aggregators will have to disclose their sales and returns along with the details of their merchants.
Another major change that GST will bring is the implementation of public compliance rating. Through these ratings, the aggregators will able to easily identify the merchants who are irresponsible with their tax filings and detach them from their platform for a better customer experience.
Tax Collection at Source (TCS)
According to GST every e-commerce aggregator has to collect a 2% tax called the TCS on the total value of the taxable goods supplied on their platform. Consider the example below to get a better idea how this works:
Let’s say E-biz is an online shopping portal, and MobileZone is a seller on this portal. So, if MobileZone sold goods of the total value of Rs. 100,000 in a day, then E-biz will collect Rs. 2,000 from it in the form of TCS. The same follows for all the other sellers on the platform.
GST is to bring many major changes in the Indian business realm, and e-commerce is no different. While the existing online sellers may find it troublesome to adapt according to the new regime, they are likely to benefit in the long run.