What is GST? And What Could be its Impact on the Indian eCommerce Avenue

ECOMMWith 352 votes in favour, the Goods and Services Tax (GST) Bill has finally been passed by the Lok Sabha on Wednesday.

The fierce opposition displayed by the Congress, the BJD and the CPI(M) on Tuesday did not translate into any roadblock for the government.

GST would replace all the indirect taxes levied on goods and services by the Central and State governments with a single nationwide sales tax. It is aimed at being comprehensive for most goods and services.

According to Finance Minister Arun Jaitley, the GST could add up to 2% to the growth of Asia’s third-largest economy. Adding further, he asserted, “The whole country, which is one-sixth of the world’s population, would become a single market, and therefore, it would give a necessary fillip as far as trade is concerned.”

With the clearance of this long awaited bill, the eCommerce players can now heave a sigh of relief. The sector in the recent times has had its fair share of falling-out with the VAT authorities. Given that the eCommerce industry has grown exponentially over the last half a decade, it has caught the eyes of every tax authority.

The eCommerce ecosystem comprises of a myriad of models that the players follow. There are companies which only provide a platform for sellers to register themselves and enable transactions with the consumers. Similarly, there are others which in addition to furnishing a platform to the merchants, offer logistical support. A third variant in this sector is the direct buy-sell model wherein the eCommerce company itself acts as the seller. Among the three aforementioned models, the one which provides logistical support (Fulfilment) in addition to serving as a marketplace, has drawn the attention of the VAT authorities, according to whom the companies working on this model are liable to paying tax, for they not only deal with goods but also act as an agent of the sellers. Thus, putting the eCommerce players in a seriously disadvantageous situation.The implementation of the GST is hence, expected to be the only solution to their problems.

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Furthermore, with the enactment of GST, the industry expects the supply chain to become more cost-effective which in turn would translate into better value and experience for the consumers.

“A speedy implementation of Goods & Services Tax for a ‘One-India’ approach is the ‘need of the hour’, with a different tax rate in each state for various categories. This will help the industry players to curb the impediments in services like Cash on Delivery. The e-commerce sector in India is moving at a superlative speed today, hence there is a dire need of a constant overhauling of the policies in the retail sector. This will in turn help create a more hospitable ecosystem for the online players wherein our contribution towards the economy will multiply several folds,” maintains Praveen Sinha, Founder and MD, Jabong.com, in an article published in The Financial Express.

Similarly, Ashish Jhalani, Founder, eTailing India, believes, “GST will resolve many supply chain issues surroundings e-commerce. The shipment and returns across the country will be done more efficiently and with lesser paperwork. The efficiency in the supply chain will also mean quicker deliveries. Companies will also be able to execute more efficient supply chain strategies, with warehousing based on strategy rather than tax requirements (like Octroi). More importantly, with an uniform tax structure across India, goods can be priced and margins calculated properly without worrying about where the product is finally shipping.” This statement was published in  Business Standard.

Likewise, Brijesh Agarwal, Founder & CEO of Tolexo, is of opinion that “the implementation of GST will give a huge push to e-commerce.Businesses buying & selling goods face lots of complexity & ambiguity related to taxation, forms & tax credits. GST will give way to leaner and simpler system of buying for businesses. It will also resolve the tussle between states over who gets to tax eCommerce shipments, thereby easing up regulatory uncertainty and pressure on marketplaces like Tolexo, a subsidiary of IndiaMART”.

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Last but not the least, and most importantly, the roll-out of the GST is likely to bring transparency, and simplify taxation.This would further help resolve issues which often crop up in warehousing operations like the one faced by Amazon at the hands of Karnataka Government last year.

  • Proud Man

    GST is yet to be passed in Rajya Sabha. It’s a very good topic but could have been a lot better. It only talks about the benefits from GST at a very high level. How exactly GST is going to translate into changes in Supply chain structure of Ecommerce is what i was looking for!