Etailers content with 1% TCS-GST; viable ecommerce laws elude govt, industry

Editor | Sep 09, 2020

‘GST is welcome but not the burden of tax collected at source (TCS)’ is what most of the Indian ecommerce players are saying collectively. Increased compliance continues to bother etailers, be it Flipkart or Shopclues.

The Indian government has decided that 1% TCS would be levied as per the Goods and Services Tax (GST). While the etailers are happy with the percentage cap, they still don’t want to hold responsible for it.

Lauding GST but moping about the tax burden, Sanjay Sethi, co-founder and CEO, Shopclues said,

“We enable several lakh small and medium business to digitisation their businesses and become part of the formal economy both online and offline. GST is a welcome piece of tax legislation and accelerates our ability to extend economic inclusion to the masses of India. But we feel that we are being asked to carry a larger burden of compliance which impacts our cost of doing business, for example, mandatory TCS collection, mandatory GST registration for online micro small business unlike their offline counterparts.”

Why increase in compliance is pricking etailers?

Start-ups and big companies within the ecommerce industry are going through a tough time currently. Heavy losses, dried-up funding scene, employee lay-offs, top-managers abandoning the boat and devaluations are just few of the many problems.

Industry watchers and companies believe that amidst all these problems, the burden of TCS under GST would only add to the woes. Sellers’ working capital would get stuck for nearly a month, which would hurt SMEs.

According to Amarjeet Singh, from KPMG India,

“Tax collected at source (TCS) would increase a lot of compliance, a lot more disclosures would have to be made and costs would be high as the volume of data would increase. The intention of the government is right and one percent TCS is fine, having said that it would mean an increase in compliance for the sector.”

It is a different story that unlike ecommerce companies and experts, sellers don’t seem to have any problem with tax collected at source. Sellers’ only concern is timely reimbursement as there have been instances when etailers like Flipkart refused to refund tax collected/deducted at source.  

Government still trying to formulate a uniform domestic ecommerce policy

The whole debate over taxes and business models highlight the fact that the ecommerce industry need uniform policies.

The Indian government was under pressure to participate in the 11th WTO Ministerial in Argentina to discuss global rules on e-commerce. But the officials have decided to stay away from the discussion until the domestic ecommerce laws are in place.

A government representative said,

“While we want to be part of the discussion and set the agenda on global rules on e-commerce, we have not been able to domestically resolve the right approach that we should be taking. Without evolving domestic consensus on contentious issues, we will not be able to engage on the matter on multilateral fora.”

Different viewpoints on what should be allowed and what shouldn’t are causing the delay. For instance, few of the government bodies are against ecommerce companies’ warehouse models. The warehouse model has allowed ecommerce companies to operate on inventory-based model or control sellers’ inventory, which even the Indian vendors are opposing.

“Both industry department and finance ministry are also opposed to allowing e-commerce companies to have warehouse models in India. We are internally exploring whether it is in our interest to have multilateral disciplines on e-commerce or not. But various departments working at cross-purposes has made the job difficult,” the government official added.

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