GST Impact on E-commerce Sector in India

E-commerce or electronic commerce (an online shopping hub) manages the buying and
selling of products and services exclusively through electronic channels. E-commerce
captures around 33% of the global market with a positive growth in near future. According to
the latest GST council 21st meeting, the registration for all the taxpayers registered under
TCS can start their registration from 18th September 2017.
Section 43B(e) defines an Electronic Commerce Operator (Operator) as every person who,
directly or indirectly, owns, operates or manages an electronic platform which is engaged in
facilitating the supply of any goods and/or services. Also, a person providing any information
or any other services incidental to or in connection with such supply of goods and services
through electronic platform would be considered as an Operator. A person supplying
goods/services on his own account, however, would not be considered as an Operator.
For instance, Amazon and Flipkart are e-commerce Operators because they are facilitating
actual suppliers to supply goods through their platform (popularly called Marketplace model
or Fulfillment Model). However, Titan supplying watches and jewels through its own website
would not be considered as an e-commerce operator for the purposes of this provision.
Similarly, Amazon and Flipkart will not be treated as e-commerce operators in relation to
those supplies which they make on their own account (popularly called inventory Model).
Every operator has to register at GST portal irrespective of the threshold limit specified for
the registration for GST. This is the biggest disadvantage for small retailers as they work on
fixed working capital and will have to pay taxes and apply for a refund later which is a
cumbersome process.
Currently, a centralized system for registration under service tax is available, but under the
GST regime, the centralized registration may not be available as the place of supply will
decide the scope of registration, in which state the registration will take place. Place of supply
in case of B2C transactions would be the location of the service provider and in the case of
B2B transactions, it would be the location of the service recipient. Hence, obtaining
registration in every state where there is a place of business will result in increased
compliances.
As per Section 43C of Model GST Law, the concept of TCS has been applied with a cap of
1% for all the seller community. Such amount of TCS is to be deposited by the E-commerce
operator to the GST account by the 10th day of the next month. As per the MGL, both the
supplier and the operator has to upload their respective entries and have to match. It is very
important to reconcile the data entries otherwise, it will be unfair for the respective party. The
TCS can play a major disadvantage in case of cash on delivery products being rejected at a
later stage. The cash flow cycle of the operator may have an adverse effect on its operations.
If we talk about the discounts offered by these operators which are the most popular
techniques to attract the customers, will give a major throwback as the e-commerce firms will
have to pay tax on the price it has purchased goods, thereafter bearing the additional tax
burden.
If we see the price impact of the product or service, it will be higher as compared to current
service tax rate, but the higher credit will reduce the prices of the services or product.
With all the new regulations, it seems that the model GST law including the TCS (tax
collection at source) clause can prove harmful for the companies as the clause demands the
tax remitted should be deposited to the government on the behalf of sellers which is
considered a very tedious task by the e-commerce companies. The parliament holds the
decision to speculate on this issue and mold the clause.
GST council in the direction of giving some liberation to the e-commerce sector taken the
step to cap the rate of highly controversial TCS in the clause of managing e-commerce
industry which requires the companies to deduct some percentage of total sales before
handing over the amount to the sellers. The GST council has decided to reduce the TCS to 1
one percent after the issues arose for the 2 percent in total.
As the TCS (Tax collected at source) clause it growing bigger within the e-commerce sector,
its worries are making a panic too. The e-commerce industry has claimed that government
has mistakenly considered the e-commerce sector as ‘shops’ which is meant to say a direct
retailing point but the sector clarifies that they are a platform for the sellers and buyers to
engage and make the transaction happen.
Various industry experts are commenting in support of the sector while also mentioning the
government aspect of making no stone unturned in the case of tax evasion. There will be an
approximately 400 crores of capital which might get stuck within the parameters of GST and
may cause harm to the industry furthermore. Also, there are issues of compliance as the e-
commerce sector will have to implement a lot of compliance which will also increase the cost
of operation.
Amarjeet Singh, Partner, Tax, KPMG in India, “What the industry is saying is that they are
not shops but platforms. 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.”
If we analyze, on the whole, we can conclude that e-commerce companies will be liable to
comply with all the obligations cast on normal suppliers under MGL / IGST Act like
obtaining registration, payment of GST, the filing of periodical returns, etc. With the arrival
of GST, there will be more complexities, but it is expected that the government will provide
some incentives/exemptions to overcome the same.