Impact of GST on Ecommerce

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GST is one of the most awaited tax reforms in India that upon its implementation from 1st of July, 2017, should make our existing tax structure simpler. GST Bill is an indirect taxation in India that will subsume most of the existing taxes such as Central Sales Tax, State levied VAT etc into single tax structure. Five laws namely CGST (Central Goods and Service Tax) law, SGST (State Goods and Service Tax) law, IGST (Integrated Goods and Service Tax) law, UTGST (Union Territory Goods and Service Tax) law and GST Compensation law have been passed in the Parliament to ready us for the implementation GST on the decided date.

With the rising user base of internet users, India is poised to become the second-largest internet market in the world after China. New Gens are very tech savvy and embracing ecommerce like never before. Online marketplaces such as Flipkart, Snapdeal and Amazon have shown meteoric rise in the past few years. Thus it becomes very important to discuss the impact of this revolutionary change on Indian the e-commerce industry as a whole.

Given that ecommerce business has been thriving for past few years only, most of our existing indirect tax structure are not so suited for this business. Some of the known concerns that this industry was facing are

  1. Local tax agencies often saw the activity of online marketplace as that of an actual seller, though in most cases their role is just packing, repacking and courier of consignment to buyer. Local tax authority often insist that ecommerce player as a dealer is liable to pay tax and should follow all compliance of the particular state. GST should bring an even footing for both online marketplace and brick-n-mortar businesses.
  2. Because of different VAT rates of each states in India and difference of understanding in the role of online marketplace, any movement of goods from one state to another calls for re-registration, deposit tax and undertake all related compliance. This “Entry Tax” will go away once GST comes in picture which would be a big relief for online industry.
  3. Currently it is easier to fake or become a low quality and non-compliant seller. GST should give way to honest, tax-compliant sellers which will in turn lead to reduction in competition and bring more of fair practices in the trade.
  4. Wholesale gets deeply affected with customers buying goods on discount and reselling them offline. GST Act will be a highly effective method to curb this malpractice.
  5. Currently, for a business based out of Bangalore, might have to file separate paperwork for selling Eco-friendly products to buyers in Manipur, Rajasthan and Punjab. But, with implementation of GST Tax in India, the e-commerce tax imposed by states will fade away.
  6. Given the complex tax structure for online business credit blockage at each stage of the transaction leads to higher cost for the product. With GST products could become more cheaper and online business to be more sustainable.

To conclude, GST offers a perfect mix of simplified selling for the sellers and easy procurement for the buyers. It would bring down the cost of many products because of ease in logistics of the online traded goods. The manufacturers and distributors would require to switch to a platform where sales and purchase is carried out with the supply chain, thereby making sure that there is no tax dispute. This would also bring in the entry of major logistics giant such as FedEx and Bluedart into India.


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