GST India: Impact on e-commerce

Today ecommerce in India is mired in a host of taxes: VAT / CST / Excise / Service Tax / TDS with more than one tax applicable on any given transaction. Involvement of logistics / reverse logistics, advertising & promotion services, goods like software, music, e-books etc. makes it hard to differentiate Goods & Services component of each transaction.  The prevalence of statutory forms / e-way bills etc. make it complex to do interstate transactions. Market places also need to comply with requirements of registrations and declaration of turnover to multiple state tax departments. Under GST, India would become a common market and drive uniformity, reduce compliance costs. Due to restrictions on cross utilization of input of central taxes against state taxes there is price escalation due to taxes sticking to products sold.

A number of e-commerce transactions are also undefined in tax laws (Ex: e-wallet, gift vouchers, drop shipments, advance receipts, COD etc.). With interstate transactions becoming tax neutral vis-à-vis local sales under GST, the warehousing strategy of ecommerce companies would also need reengineering to meet client proximity needs and not be driven by tax consideration. On the positive side pricing of product, profitability would be more predictable and agnostic to destination of customer.

For e-commerce companies who buy stock, store inventory and sell, in place of 12.5% Excise they will have to shell out 17-18% GST thus driving up prices. They will also be taxed on unsold inventory held in warehouses.

Business Process Change:

Ecommerce companies like Amazon and Flipkart operate under the market place model, wherein they store the goods from sellers at their warehouse and supply to end users upon receiving orders. These warehouses are registered as additional place of business under local VAT by sellers and e-commerce companies do not register under VAT.

Under GST both ecommerce companies and sellers would have to simultaneously register these warehouses as Principal and Additional Place of Business, respectively. This would be challenging as these warehouses do not have dealer wise physically segregated or designated areas within the warehouse.

Also the treatment of stock transfer from seller to the warehouse under GST would be different as any ‘supply’ is taxable. This might lead to cascading of taxes as typically sellers do not ‘sell’ stock to e-commerce companies.

However, on the positive side the ‘Fulfilled by Amazon’, ‘Flipkart Advantage’ or ‘Snapdeal Plus’ model wherein dealers store their products at warehouse is currently disallowed in states like Karnataka may be revived. Currently registration of market place warehouse as additional place of business is disallowed and under GST regime this may change. Market places will also have to take registration in each of the states and union territories.

While determining place of supply of goods to customers may be easy to determine, the place of supply of services by ecommerce forms to the sellers may be little difficult (Ex: for large vendors like shoppers stop who supply from multiple locations). 

(The views expressed are strictly of the author alone)