GST (Goods and Service Tax) has been introduced to expand the tax net through 101st amendment of constitution. They say 101 is an auspicious number and therefore the rolling out of GST will have good effect in the economy. Goods and Services tax has come to effect from July 1, 2017. This new tax has rattled many small to medium sized businesses.
No matter which vertical a business belongs to, it has been affected – either positively or negatively. It can be said without any doubt that implementation of GST was not easy especially in a country of such size and diversity. Such an enormous task has not been done by any other country of similar size as well as complexity. Simplifying tax structure is not an easy task. However, GST is aimed at simplifying as well as rationalising taxes, thereby helping goods to move from one part of the country to another seamlessly without any kind of discrimination among regions. This is expected to increase growth and at the same time improve ease of doing business.
In this blog, a comprehensive analysis will be done on the effects of GST on ecommerce website.
A section of the industry, especially from the online industry believes that GST is the best thing that could have happened to B2B ecommerce throughout India. One of the major advantages of ecommerce industry from this tax reform is the ability to maximize distributed inventory benefits. Here, there is no requirement of dealing with variables including optimisation of tax net.
Currently, it is being seen that different states of India impose entry taxes as per its requirements and many times from its whims. With GST in place now, the time is now not far away when these kinds of state-specific entry taxes will be done away with, thereby leading to rationalisation as well as simplification of taxes with the help of GST. From now on, there will be only one tax for the businesses to pay and that is GST.
Ecommerce and GST
There are three challenges regarding implementation of GST and they are –
1. Collection of tax at source itself
2. Proper treatment of returns on sales, cancellations, discounts, and replacements
3. There were certain clauses that are restricting or delaying implementation of GST bill.
Ambiguity around a few specific clauses in the GST draft bill still persists. Now, let’s check out how these challenges can be combated.
How to Combat These Challenges?
The bill suggests that ecommerce platforms have the responsibility of collecting the TCS on sale of goods as well as services that are made by the supplier. The filing of return is needed to be done on a monthly and yearly basis. This is needed to be done by the ecommerce platform. This becomes a huge accounting burden for the ecommerce sites because lakhs of sellers carry on transactions on these platforms on a daily basis through the ecommerce sites.
GST law suggests that it is the ecommerce aggregators that have to collect and deposit tax from each transaction at the rate of 1 per cent. If you are a trader or dealer then you would get the payment after the deduction of 1 per cent tax is done. Every online traders or dealers have to get registered under Goods and Services Tax even if the yearly turnover is less than 20 lakhs.
Till now in India, the Cash on Delivery (COD) mode is still a prevalent mode of ecommerce transaction. This is one of the reasons that the rate of cancellations as well as returns stand at around 15 to 18 per cent. In addition, it takes anywhere from 7 days to 15 days for cash reconciliations. This is a big challenge on part of the ecommerce platforms because unlike other offline business models there are certain distinctive variations and special problem scenarios such as –
• Returns take place in a different month than the sales booking
• Interstate cancellations of orders are quite common in ecommerce platforms
In case of returns, there are special provisions too. The GST law suggests that the reported supplies of ecommerce companies will be matched with the figures provided by the supplier in its return for outward supplies. If there are any kind of mismatch then redetermination of vendor’s output liability will be re-determined.
The law suggests that in case of returned products (especially the ones that are returned in the next month or even in the same month) the ecommerce firms have to claim refund of the tax from government.
What’s the Way Ahead?
GST brings with itself benefits as well as concern for ecommerce companies. However, the benefits outweigh the concerns when seen in aggregate. The present situation is that the ecommerce industry needs more clarity especially in terms of different ecommerce verticals such as tourism, ticketing, booking of resorts and hotels, events, and adventures.
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