When the goods and services tax (GST) was first proposed, many in online retail breathed a sigh of relief. The tax reform promised to do away with entry tax on ecommerce under its ‘one tax one market concept’.
“We think it’s a big positive. We may face few issues in beginning as many of the tools we are using will be going through big revamp and from our side we may have to monitor things. But overall effort will simplify things,” the eCommerce Sellers Association of India (ECSAI.org) shared with IOS recently.
However, the specifics of this new tax are foggy when it comes to sector-specific provisions.
Chirag Jain a multi-category online seller questions other sellers in the industry, “Have we actually looked into the nitti-gritties of its (GST’s) implementation and more importantly its impact on small players, different sectors and the employment scenario of the country?”
IOS communicated with online sellers who believe this new tax will cause an upheaval in ecommerce and even ruin businesses in this industry. Through our interactions with them we uncovered the following facts about GST –
1. “Inflation will be on the rise”
Hitender Tanwar, a phone accessories seller, like many, is expecting GST to cause prices to shoot up.
Chirag also feels the same.
He says, “All the rates need to be increased to retain the same amount of profit. A seller who has already stocked up material has already paid up for the excise and with GST the existing VAT rates will get sidelined by a higher GST tax %. Eventually, on already purchased products, the cascading of taxes has already happened.”
2. “Impact on MSMEs”
“A specific proposal in the draft law relating to tax collection at source will prove to be detrimental to lakhs of small and medium sellers who do business on ecommerce platforms. This clause, which is not applicable to offline sellers, will hurt the working capital requirement for these sellers as they work on small margins to provide affordable rates to consumers.”
At the time, the sellers at AIOVA mentioned that their tax liability would remain unchanged for them after the implementation of GST. When we asked the group of 2,000 online sellers if they had a change of mind about this their spokesperson informed us that there would be nothing new for ecommerce.
“It will slow down processes in the initial stages as sellers will come to know the compliance and pricing changes. However, it will be the same across all industries,” the spokesperson added.
On the other hand, seller Chirag informs that,
“1. The impact on MSMEs (Micro Small Medium enterprises) is so huge that it entirely washes away their tax benefits.
2. Further, the raising of limit of exemption of sales tax, be it (under) VAT or GST, to Rs.20 lakhs from current Rs.5 lakh makes ecommerce a lot unattractive. An online seller pays taxes from first bill whereas a shop owner or a small local businessman has no need to even maintain a record upto Rs.20 lakhs. This limit which causes economic disparity has to be made ideally zero. Only then everybody will be on same page.
The GST scheme is nothing but a mere transformation of existing terms into newer terms. The GST scheme is totally oblivious of the market realities and the different business models.”
He offers the following example to explain his point –
Example – If I am an ecommerce seller and I purchase within a state and also sell within that state which portals like Kraftly (are) already providing, then do I need to be taxed? That is because I am now in both brackets of ecommerce seller as well as a local businessman who should enjoy Rs.20 lakh exemption limit.
In a second illustration, he mentions that GST increases the difference between taxpayers and non-taxpayers –
Example – Suppose I am an online seller or a dealer who purchases out of state goods for selling, then I have to charge my customer a sales tax from Bill No.1, but a dealer who buys within the state and sells upto 20 lakhs in net turnover has to chill out and not charge any customer any tax nor does he have to bear the cost of GST compliance. As a small player, you just killed my incentives of doing business.
3. “It will take time to understand it and adapt to it”
Online seller Shakti Gandhi says that GST will be helpful for genuine online sellers. All those not paying VAT and creating price wars will vanish or be forced to pay tax. The seller, however, feels that uploading bills will be a headache but a welcome move.
He says that many using third parties for inventory management and invoice generation may have to stop these facilities as sellers will need to raise invoices themselves on their respective marketplace websites. The seller claims that the third party service providers will have to make changes to their software to pull required information for this very purpose.
Until then it appears that online sellers will have to manually file returns. Adapting to this system will take time and so will and some understanding at the start.
“So far I have discussed the impacts of GST on macro parameters. The real fight for anybody who is under its purview is even more troublesome. 37. Yes 3 monthly returns x 12 months + 1 Annual return amounts to 37 annual returns that need to be filed by any GST registered dealer. Does a dealer have enough time and sources to do that? If I outsource this task to a service provider,will he have ample resources to file my 37 returns annually?” Chirag inquires.
4. “Influence on pricing”
Once GST comes into play, Excise duty will be eliminated. This was imposed on large manufacturers and helped small manufacturers maintain low competitive prices. But, with the removal of excise, the price of small manufacturers shows as greater. This according to Chirag will wipe out small businesses from the online retail scene. Have a look at his illustration below:
5. “Sellers will quit online selling”
Baby products vendor, Mayank Goyal has deduced that GST will make sellers on digital platforms leave and only the genuine ones will remain. At the same time, he reveals that GST will unravel problems for the online sellers who do stick around.
He says, “GST will bring a headache to sellers too, as –
They have to keep all data themselves and also they will face issue(s) with orders placed before GST and if these are returned after GST come into play.
The accounts should be maintained by sellers after GST and they should reconcile their accounts regularly.
Marketplaces will likely increase their commission as they have to face the heat of the government.
Also, the data of sellers they have has to be maintained in terms of sales, returns and payments made to them.
As the prices will be increased drastically, sellers might see low sales initially but genuine sellers will benefit with GST.”
6. “ Seller’s amount will be stuck for a few days”
Rohit Singhal an Amazon.in seller is eagerly awaiting the implementation of GST. He sees it as a good decision by the Indian government.
He mentions, “With GST including ecommerce many (tax evading) seller will come under the tax bracket. Also, TCS will ensure that they will be unable to escape the taxes as all marketplaces will be liable to deduct 1% TCS. With only 31% of GST registration happening I am hopeful to see good days ahead for genuine sellers in the ecommerce market space.”
But in spite of this major positive sign, the merchant still feels that there will be negative impacts.
“1. One percentage of the seller’s amount will be stuck for few days.
2. Also, the products that are returned back have to adjust these deductions accordingly.
3. Apart from that sellers lose out on composite tax limit of 50 lakhs and GST exemption of Rs 20 lakhs as GST is mandatory from the first rupee sale in ecommerce,” Rohit explains.
Though the GST reform will come with a wave of benefits, online sellers stand the chance of suffering negatively. Chirag says that clarity is still absent when it comes to dealing with services tax under GST. He feels that this tax is an industry killer and will destroy employment opportunities. To make sure you do not suffer major side effects from GST, you need to prepare for the tax reform well in advance.