Lauded by the e-commerce giants upon the inception of the GST bill at the Parliament for its efficiency, recent developments reveal that the GST may not be the best move by the government for retailers after all.
According to a recent report, it has been suggested that GST rates may go up by 10-15% for retailers such as Amazon, Flipkart and other e-commerce sites. This means that the already high-cost mechanism of such online retailers will sky rocket, causing them to only pile on their already huge losses. E-markets such as Amazon, Flipkart, etc., find discounts the easiest way to attract a larger consumer base. This in return entails a loss in revenue returns.
“The working capital needs of the e-commerce firms would go up after the GST comes into play as the burden of tax on stock transfer would go up,” said Prashant Deshpande, senior director at Deloitte Touche Tohmatsu India. “So, while now the firms are paying around 12.5% of excise duty before the stocks are transferred, in future they would have to pay the GST rate which would be at least 8-10% more than excise duty ,” he said, talking to The Economic Times.
The e-commerce sector in India is very unlike those of US and China who’ve been playing the game for long. India, still in its infant stages, was expected to take a giant leap into adulthood with the introduction of GST – Goods and Services Tax. The idea behind GST is to reduce the innumerable indirect taxes paid by online retailers to the state to one tax – the GST. GST being a destination based consumption tax, is supposed to have a Central component levied and collected by the Central government and a State component levied and collected by the State Government.
“With a uniform tax structure across India, goods can be priced and margins calculated properly without worrying about where the product is finally shipping,” said Ashish Jhalani, Founder, eTailing India & ISeB. It was expected by e-retailers that GST would make supply chain management and tax management easier for them. Ravi Shankar Prasad, the IT and Communications Minister has played an important role in bringing GST to the Indian online retailers.
The imposition of such a high GST rate entails that online retailers be more careful of the stocks in their warehouse as they become accountable for them inspite of whether these stocks sell or not. Analysts foresee that managing warehouse stocks, finding a balance in meeting consumer needs and stocking goods, assessing the consumer base for the demand of goods can help online retailers reduce the toll of GST.
Will GST come into action?
Even though the GST bill has not been officially passed in the Parliament, the news of its expected hike in rate has caused several online retailers to worry about their income in the Indian online retail market. Inspite of the opposition to the GST Bill passing around in the form of the Congress government, it is expected that the GST Bill will be passed by the Narendra Modi government by the end of July 2015.
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