With the imminent arrival of GST from July 01, 2017, the industry in India is waiting expectantly, especially because of the impact GST is likely to have on each sector. Electronic Commerce or e- commerce for short is one of the recent industries which is cautiously studying the future scenario.
Over the last few years, e-Commerce has gained popularity as the most preferred way of doing business and has loyal customers with a variety of demographic profiles across the country but with a special pull among young and tech-savvy generation. e-Commerce works in a different way than other conventional businesses in India and this sector has also attracted investment from foreign investors too. With GST, India is also hoping to be on par with over a 100 countries worldwide with similar tax in place.
eCommerce businesses are expected to benefit from GST because until recently, they suffered from the complex and multi-tier supply chain system involving a lot of paperwork, reporting and compliances. Since GST is going to remove complexities arising out of the multi-tier supply system, the resultant lesser paperwork and lesser compliances, will help e-commerce companies improve their efficiencies. Being a single tax regime, being applicable in Centre as well as State, there will be transparency and ease in transport of goods, esp. for e-Commerce business which sells goods across States.
High Storage costs
On the flip side, the costs for the eCommerce industry are likely to rise due to the high expenditure involved in storing and warehousing of the goods. Even if the goods are not sold, tax will have to be paid and can only be reclaimed once the good is sold. Some experts believe that this will increase the working capital of the eCommerce firms and they may end up paying GST which would be higher than the excise which is currently levied on them.
It is also believed that in the GST regime, e-commerce operators will be able to claim credits on service tax paid on warehousing, logistics, and commissions of service providers, which they are not allowed to levy currently. Also, they will be able to claim credit of VAT paid and with clear-cut and uniform VAT model agreed by all States and the Center, e-commerce business is set to gain momentum.
Under the GST regime, all e-commerce operators will benefit from the fact that the country will become one market place and there will be free movement of goods and services. What this means is that henceforth, instead of managing 29 different registrations and compliances within different States, they will have the advantage of working in one national market and one national Law, thereby reducing multiple legal hassles which is their current bane.
In short, GST will be good for online businesses because it brings clarity in the tax areas. GST will also open new markets for online commerce because, today, due to complexities of entry tax and other processes, customers in some States cannot order everything from online shopping destinations, which they will be able to do.
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