Online Retailers Fear GST Compliance Burden

The much awaited announcement of the Goods and Services Tax (GST) has garnered mixed reactions from the burgeoning e-commerce sector, which is going through a rough phase due to dwindling funds and increased losses.

After raising capital in hordes last year from private and venture capital investors, several startups have failed to scale up their businesses to the next level. With the new economy sector coming under the ambit of GST, tax will now be levied on all online purchases at the first point of transaction which will naturally get in uniformity, besides bringing in simplification in process and a centralised registration for startups.

All in all, the move is aimed at resolving various tax issues that these ventures face at different states but in the short term there are certain painstaking changes that the sector has to brace itself for.

"The passage of the GST Bill in the Rajya Sabha is a progressive measure as it can facilitate seamless movement of goods across inter-state borders enabling better efficiency and spurring growth of the (eCommerce) sector," said K Ganesh, Serial Entrepreneur, Partner - GrowthStory and Promoter of sector leaders such as BigBasket, Bluestone, FreshMenu, Housejoy, Homelane, Portea, among others. "However, like every regulation, it needs to be implemented correctly, and should not make lives of e-commerce players even more complicated by burdening them with more administrative hassles," he added.

Industry insiders say the GST Bill may put a compliance burden on online retailers who are engaged in the business of buying and selling.

Sample this: Going forward, in relation to the any sale made by e-commerce companies, it will be the obligation of e-commerce companies to maintain necessary records and documents in respect of each seller on their platform and file the necessary documents and submit the tax with the Government. And to achieve this, keeping in mind that there may be thousands of sellers on the platform of an e-tailer, the compliance burden on e-tailers will naturally increase because they have to have dedicated employees who would handle the entire documentation and ensure that all compliances are made by such e-tailers. This in turn would increase their cost.

But for the consumer, the price points of many products should come down or remain at the current levels (depending on the GST rates) as there will be free flow of credits since the total indirect tax cost embedded in the price (of products) is likely to decrease, Gnesh pointed out.
In the long run, given that GST will be able to wave off cascading taxes from ecommerce, startups naturally have more positives in story from this reform measure. "With GST being destination based tax, perennial issue of the origin state and the destination state warring to tax the very same online inter-state sale or through levy of special entry tax on online sales would be put to rest," said Mahesh Jaising, Partner, BMR & Associates LLP.

The destination based consumption taxation as proposed under GST would ensure that all states get their share of revenue basis actual consumption of goods in such state and there would be no unnecessary disputes around the same.