The Goods and Services Tax (GST)– Why it will Benefit the Indian eCommerce Industry
The Current Government is planning to roll out the Goods And Services Tax (GST) soon, which Industrialists all around the country are awaiting with baited breath. The backdrop to the proposed introduction of this tax is the fact that India has no tax laws in place that will regulate the eCommerce Industry.
Therefore, the imposition of tax is done on the basis of the interpretation of local taxation levies in different states. Hence, the introduction of the GST will truly benefit the booming eCommerce sector in the country. In the absence of a suitable legislation, it is being declared that businesses are suffering due to various interpretations that vary from state to state.
Amazon and VAT
This issue recently rose to the surface, when the Karnataka State tax authorities raised concerns about tax evasion by Amazon India. The questions that were raised were that why no VAT was being paid by Amazon and its sellers, who stock their goods at Amazon’s warehouse in the outskirts of the city.
Amazon does not sell directly, and offers only a platform for buyers as well as sellers for their transactions. The sellers offer Amazon a commission for offering them a marketplace to sell their goods. Thus, Amazon is not the direct seller of the goods and therefore, it has claimed that it does not come under the purview of VAT or Sales Tax, and it is liable for only service tax under the current tax regime.
Cancellation of Licenses
At the same time, the sellers who stocked their goods at the Amazon warehouse by designating it as an additional place of business had their licenses canceled by the state authorities, who said that it was a contravention of the state’s VAT rules. The state tax authorities also ordered Amazon to discontinue selling some of the products that were previously stocked by these sellers (numbering around 100) i.e. those who were supplying the products to Amazon’s warehouse.
Consequent to this decision, the company had no choice but to cancel many order that were received and bear the subsequent losses. Now that the eCommerce industry has taken root in India, the ground situation is that it does not have any eCommerce laws in place. Consequences have arisen and the current standoff is due to the differences in interpretation of the vague laws by Amazon and the state tax authorities.
Now given the ground situation, the only option for some eCommerce operators is to shut their warehouses in states where such issues crop up. This move by the state authorities is being viewed as regressive by many and if corrective measures like the GST are not implemented soon, it can deepen the stand off between the opposing sides and jeopardize the future of the eCommerce industry in the country.
Benefits of implementing the GST:
- By implementing the GST, the problem discussed in the foregoing lines will be rooted out effectively. The eCommerce industry has certainly been viewing the GST as an ultimate remedy to end its endless tax woes.
- Already being embattled by logistics issues, the eCommerce companies are viewing the roll out of the GST as a solution that will simplify many issues. The objective of the GST is to simplify and streamline the indirect tax regime in India.
- The GST is a single comprehensive tax regime that will be applicable across all Indian states on the sale, manufacture, as well as consumption of goods as well as services. The eCommerce companies already operating in the country will not have to struggle with the complicated as well as complex tax regime and regulatory structure that prevails currently.
- Under the GST, it is proposed to levy the central as well as the state taxes on the manufacturing cost at the point of sale. This will help eliminate the challenge of the tax being levied on the same product or service multiple times.
- This also implies that many companies, which are designing their sourcing, distribution, and warehousing strategies just to avoid the current tax regimen as it is, will be able to change the way they plan and therefore devise strategies that are actually in their best interest.
Thus, eCommerce companies will not need a warehouse in every state, but can have a large warehouse at a strategic location that is capable of fulfilling the demand of several states and minimize the costs.
Hence, by easing regulatory norms, eCommerce companies can stand to improve their profits by over 20 percent by a cost reduction of a mere 2 percent. Therefore, this move will also position the country as an industry-friendly destination and will attract more investments from foreign countries. The eventual outcome from the implementation of the GST will be additional employment opportunities, making it a win-win situation for both, the industry as well as the economy.