Skip to main content

GST- Impact on Ecommerce Business/ Online Marketplace

With the rapid growth of e-commerce business & ever evolving regulatory landscape in India had posed a very significant question on the twilight prior to the enforceability of Goods & Service Tax (“GST”) which is to be effective from July 01, 2017- What will be the impact of GST on e-commerce? Unlike, brick & mortar business models, where e-commerce business are working on various different business models, will the impact be same or differ for e-commerce business- a question which is yet struggling to find answer and keep many of the players hinged on the pivot.
Growth of any business is good news for the economy and it’s been expected that to keep the same path of growth, there has to be clarity on taxation matters and ease of doing business. Of lately, there are several apprehensions in business world- Whether GST be a more hurdle rather than a catalyst for growth?
Present issues under VAT & Service Tax faced by Ecommerce business:
1.      Firstly, e-commerce sector dealing in trading of goods have experimented with various business models. Starting with the traditional 'stock-and-sell' model, the e commerce companies have transformed into a multi-model platform over time by introducing 'market place' and / or services model, thereby having to grapple with a more complex tax framework involving VAT / CST, excise, and / or service taxes. However, the indirect tax laws have not been able to recognize and accommodate the evolving business models and hence have become an impediment in the operation of the newer market place or services model.
2.      Secondly, the e-commerce sector is having a hard time categorising their offerings into 'goods' or 'services' for charging either value added tax (VAT) / Central Sales Tax (CST) or service tax. This situation aggravates in the case of digital downloads involving software, music, e-books etc. wherein it becomes challenging to assess whether the transaction is for sale of goods attracting VAT / CST or a provision of service that should be charged to service tax. Both VAT and service tax authorities exercise right over such digital transactions leading to disputes and never-ending litigations.
3.      Thirdly, inter-state movement of goods from one state to another is a nightmare for an e-commerce operator. The requirement of statutory forms, way-bills, road-permits etc. and the recently contemplated imposition of local registration requirements for the e-commerce market place entity by certain States under the VAT / CST legislations for entry or sale of goods into the state has made the inter-state transaction an awkward experience for the sector.
4.      Fourthly, the non-fungible VAT and service tax results in significant non-recoupable tax cost impact for the e-commerce sector.
In addition to the above, the tax laws in India have also failed the e-commerce sector by not providing enough clarity / guidelines on taxation and documentation management for typical e-commerce sector transactions like e-wallet (advance deposits by consumers), cash-on-delivery (payment collected at the door-step of the consumer), gift vouchers, drop-shipment (direct delivery of goods from the e-commerce company vendor to the e-commerce company customer) etc. Absence of specific direction on treatment of the above transactions under various tax legislations has led to diverse practice being adopted by the e commerce sector.

E-commerce sector is here to stay and would be one of the pillars of the Indian economy in the near future. Businesses can thrive and grow only in a tax conducive environment and it is obvious that the above issues cannot continue forever and would need resolution sooner than later. While the e-commerce sector is eagerly looking forward to the upcoming budget to address the concerns and act as a business catalyst for the sector, the Goods & Services Tax (GST) which would replace the current indirect tax regime and expected to be implemented in India from 1 July, 2016, could hold the key to unlock the issues faced by the e-commerce sector.
  1. Standardization of Taxes & Pricing: Under the present tax structure, different states impose different VAT rates on the same goods. For example, Karnataka has a tax rate of 5% on mobile phones, whereas Maharashtra has 13.5%. Online marketplaces list sellers who need to charge lower taxes thus making the product cheaper than local retail prices. The e-tailers often enter exclusive tie-ups to take advantage from tax arbitrage. Post GST, there will be standard tax rates for each product and tax arbitrage will not be possible, bringing e-tailers and offline sellers to the same level in terms of costing and pricing.
  2. Ecommerce & Working Capital: Under GST, online marketplaces will have to deduct 2% tax per transaction while making payments to sellers listed on their portal. This Tax Collected at Source (TCS”) will be handed over as collection towards GST to the government. This rule however does not apply to offline retailers. With TCS, capital will be locked away for periods between 20-50 days depending on the transaction date. The significant impact on the cash flow will force smaller firms to seek additional working capital or ignore the e-commerce marketplace altogether, as it may not offer envisaged convenience and benefits.
  3. Mandatory Registration: While GST registration in normal case is mandatory where turnover is Rs. 20 lakh or more, if a trader wishes to sell through online portals he needs to get registered irrespective of turnover. Merchants without proper registration will be forced to move out of the online system. Now, all sellers will be required to be registered and charge taxes at standard rates creating a level playing ground for all online sellers in terms of product pricing.
  4. Additional Liability on refund & cancellation of orders: Majority of the products sold online carry a return date of 30 days which translates to about 15 - 20 million transactions per month and the returns and refunds for these have to be done with utmost care. The returns are required to be filed monthly now by both parties and refund adjustment will need special attention affecting tax liability.
There are several other issues which may be faced by Ecommerce such as adjustment of profit so not to fall  under the net of anti profiteering.

For further details w.r.t. GST and its Impact on your Ecommerce business, please contact us at admin@equicorplegal.com/ 09958709189.

Comments

Popular posts from this blog

PSARA License: To Start a Private Security Agency Business in India

Private Security Agency business is one of the most sought and rapid growing business in India with huge demand and potential. Due to ever evolving demand for private security by industry & business segments, the Private Security Agency business is growing for more than 20% and there is still huge untapped market still wide open for the future ventures. Today in any and every aspect, private security has an important role to play, whether its transfer of cash to ATM, transportation of valuables or protection to key members of business conglomerates. Any Private Security Agency cannot commence its business and operations in India without procurement of license under Private Security Agencies (Regulation) Act, 2005 also known as PSARA License . PSARA License is obtained state wise & is valid for 5 years and had to be renewed after every 5 years. The government fees for PSARA License is as following: 1.        For one (1) District- Rs. 5,000/- 2.        For more th

Non-Banking Financial Companies (NBFC)

A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). Advantages of NBFC a)       it can provide loans and credit facilities, b)       it can trade in  money market instruments c)       it can do wealth management such as Managing portfolios of stocks and shares d)     

Investment Frauds by Investment Advisers

Today driven by the promise of higher returns than the saving accounts or fixed deposits, most of the small and retail investors are moving their investments under the guidance of Investment Advisers. “ Investment Advisers ” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called. Investment Advisers who make public appearance or make recommendations or offer an opinion concerning securities or public offers through public media while making recommendations through public media are required to comply with the relevant applicable laws. What is an Investment Advice: - “ Investment Advice”  is an advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether

NCLT has Exclusive Jurisdiction for all the Company Matters

In deciding an appeal in the matter of MAIF Investment India PTE Ltd. v/s Ind-Barath Power Infra Limited & Ors ., Company Appeal (AT) No. 334 of 2018, NCLAT has reviewed and decided on the issue of exclusive jurisdiction of NCLT in all the company matters and to bar the jurisdiction of civil courts including   complex and contentious one. The appeal was against the order given by NCLT, Hyderabad, where the NCLT, Hyderabad bench declined to entertain the petition under Section 59 of the Companies Act, 2013 for seeking a rectification in the register of members. The alleged dispute involved conversion of compulsory convertible debentures without requisite consent and quorum. NCLT, Hyderabad dismissed the petition stating the reason that issue raised were complex or contentious issue which required the examination of the Arbitration Act, 1996 & Insolvency & Bankruptcy Code, 2016. While dismissing the petition, NCLT, Hyderabad had relied on Supreme Court’s 1998 judge

Types of Companies under New Companies Act-2013

With new testament of Corporate law in force has introduced several different types of companies with special features. ONE PERSON COMPANY (OPC) One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013, which reads as follows: 'One Person Company means a company which has only one member' It shall also be important to note that Section 3 classifies OPC as a Private Company for all the legal purposes with only one member. All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded. Ø   Only a natural person who is an Indian citizen and resident in India- ü   shall be eligible to incorporate a One Person Company; ü   shall be a nominee for the sole member of a One Person Company. Ø   No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company. Ø   No minor shall become member or nominee of the One Person Company

Legal Obligations of Technology Service Providers as Intermediaries

A database of millions of customers including their contact details are found freely accessible online and are available for sale at a very nominal price at various online social media platforms has brought a serious and basic question in focus- who all can be held responsible and accountable for such unauthorize and illegal acts? Prima facie , the person who is selling the database is responsible under the eyes of law, but do the technology services providers or the platform where such database is been listed, owes any obligation to the customers and can be held responsible for unauthorize acts by a third party on their platform? The technology service providers or the online platform operators are commonly known as “ Intermediaries ”. In India, these technology service providers or Intermediaries are governed by the provisions of Information Technology Act, 2000 (“ IT Act ”) along with Information Technology (Intermediaries Guidelines) Rules, 2011 (“ Intermediary Rules ”)

Nidhi Companies in India

This article enumerates the brief transaction procedure involved in the establishment of a Nidhi Company and the laws relating to Nidhi Company in force in India. It shall be noted that the activities described hereunder covers various relevant legislations, regulations and rules, for the time being in force in India and the legal entity has to obtain approval/register itself with Ministry of Corporate Affairs (“ MCA ”). Preface In the Indian financial sector, Nidhi Company refers to any mutual benefit society notified by the MCA. They are created mainly for cultivating the habit of thrift and savings amongst its members. The amount of business conducted by Nidhi Companies is not as big as commercial banks or deposit taking Non-Banking Finance Companies. Nidhi Companies are highly localized and mostly single office institutions. They are also referred to as mutual benefit societies, because they accept deposits and give loans to only their own members; and membership is limited