Impact of GST on E-commerce sector
Currently, the federal indirect tax structure with different tax regimes in various states has led to confusion and uncertainty on the tax treatment of online marketplaces and aggregators. It is felt that having clear and defined laws will help remove the ambiguity that currently exists in this sector, and insulate such operators from ad hoc laws and arbitrary levies imposed by State governments.
- Compliance & accounting burden
- Working capital issues for small sellers
- Cash on delivery, Returns and Cancelled Order
- Disadvantage on discounts and freebies
- Removal of cascading taxes
- Consolidated tax rates
1. Compliance & accounting burden :
E-commerce platform will be liable to collect TCS (tax collected at source) on the supplies of goods and services made by the supplier.It will be the responsibility of e-commerce firm to file monthly and annual returns.Also, the supplies reported by the e-commerce firm will be matched with the details given by the supplier in his return for outward supplies and in case of a mismatch; the output liability of the vendor will be re-determined.
2. Working capital issues for small sellers :
It expects e-commerce platforms to collect tax on every transaction no matter how small the seller might be. This essentially means that a small seller on the platform will invariably end up paying tax and would later apply for a refund. This could be a grave issue for small and medium businesses that work on very tight working capital.
3. Cash on delivery, Returns and Cancelled Order :
Deducting tax at source would require e-commerce firms to bear the tax amount from their own capital and later seek refund from the government in case of returns and cancellations. Thus TCS can be a major cash flow disadvantage for e-commerce firms especially in the case of cash on delivery or orders being rejected later.
4. Disadvantage on discounts and freebies :
Under GST, freebies are expected to be taxed creating additional burden on the sellers. Also, in case an e-commerce firm decides to sell an item on discount it will have to pay the tax on the price it has purchased the goods from the supplier, hence bearing the extra tax burden on its own.
5. Removal of cascading taxes :
Currently, traders are denied credit of service tax paid on input services such as warehousing, logistics, commission of marketplace and service providers are not allowed to claim credit of VAT paid on goods that are used for providing output services. GST model will therefore facilitate seamless credit across supply chains, with tax set offs available across the production value-chain, both for goods and services.
6. Consolidated tax rates :
Currently, there are differential rates of VAT for the same goods in different States with further fragmentism of VAT rates. This has in the past resulted in classification disputes. However, GST rates at both the Central and State level are expected to be uniform and harmonized which would reduce disputes.