A couple of days ago, the head honchos of online retail came together and agreed that GST was alright for the industry but TCS (Tax Collected at Source) would bring about hindrances. The GST model requires etailers to deduct 2% TCS while paying suppliers and deposit it with the Government. At the same time, it does not apply to those who sell offline.
Snapdeal’s spokeswoman responded saying, “With TCS, capital will be locked away for periods between 20-50 days depending on the transaction date. The significant impact on the cash flow will force smaller firms to seek additional working capital or ignore the ecommerce marketplace altogether, as it may not offer envisaged convenience and benefits.”
An Amazon spokesperson said, “Working capital will be hit. Also compliance is an added burden for ecommerce companies. Majority of the products carry a return date of 30 days and given 15-20 million transactions per month and the returns, refunds to sellers have to be done with utmost care.”
But for online sellers, the meaning of TCS is quite contrary.
Sellers’ argument for TCS
The All India Online Vendors Association (AIOVA), a collection of 1,800 online sellers expressed that TCS under GST will not affect the average online seller. Only those evading taxes will feel the impact of TCS. The association mentioned that the issue of blocked capital on online marketplaces is already a challenge.
“The TCS clause will remove the problem of tax evasion among many sellers and the ‘unnatural’ competition emerging from it. Secondly, since the ecommerce companies are already holding seller money, TCS will not affect our liquidity,” AIOVA’s spokesperson said.
eSellerSuraksha, now known as e-Commerce Sellers Association of India, also had something to add, “Merchants without proper registration will be forced to move out. This makes a level-playing ground for all online sellers in terms of product pricing. The merchants who evade tax may also quit.”
Seller’s argument against TCS
The main concern raised against TCS was that it would cause problems when product returns occur.
Campus Sutra co-founder, Dhiraj Agarwal stated, “Product returns in apparel ecommerce range between 15-20%. We will be required to claim the TCS from the department directly which is a cumbersome process.”
According to etailers, TCS will discourage sellers from doing business online and in turn hurt the online retail industry on account of held back working capital.
AIOVA made recommendations to the GST council asking them to maintain a threshold limit for TCS that will work for the online seller. Especially, if the present VAT liability is less compared to the TCS amount to be deducted.
For more developments related to GST in ecommerce stay tuned & click here for steps on how to prepare for it.