Budget 2017 rolled out to a positive reception earlier this year and this successful roll out has definitely upped the expectations of the common man for the upcoming GST bill. News on GST took the country by storm in 2016 and while most experts think this is a welcome move that will benefit our economy, the e-commerce industry begs to differ. Most news reports have stated that smaller e-tailers seem to be unhappy with the one country, one tax rule and the GST for e-commerce might have them at a disadvantage.
To understand how e-commerce players will be affected by the GST, we need to know what players will be liable to taxes under the new tax framework.
Most economies across the world haven’t been able to make much headway with taxing e-commerce platforms, but with the GST set in place, this will be possible; the GST will reach not just the e-commerce biggies like an Amazon or Flipkart but also every e-commerce vendor. Manufacturers like The Body Shop or Titan who have been selling online through their own website will also be brought under this framework.
How does this affect e-tailers?
Firstly, a centralised Value Added Tax (VAT) rate will hamper the price advantage that e-commerce companies enjoyed – for instance, the VAT on a product in Karnataka is much lower than the VAT on a product in Maharashtra. Tax arbitration will take away the perk of buying at a pricing advantage.
All online sales occurring post 1st July 2017 will need to get a deduction (proposed at 2%) at the aggregate level before passing on the proceeds to merchants, thus affecting cash flows and margins on products that generally come with a lower margin (electronic goods).
It will be mandatory for all merchants to report sales through online channels separately on a monthly basis. So, merchants evading tax payment on their online sales would be detected much more easily; additionally, merchants will need to register under GST (regardless of how much they make) – this has majorly upset small time traders with a lower turnover rate.
On a positive note, shipping across India will become relatively cheaper – as state borders will no longer impose import/export duty on products.
A quick summary of The Goods and Services Tax – GST is one of the most important economic reforms that will change the way taxation is looked at in our country. This is likely to affect manufacturers, distributors, wholesalers, retailers and consumers. At the moment, taxes are divided between the Centre and the State. Both the Centre and the State Government have some taxes that are exclusive to them – for instance, we pay income tax (direct tax) to the Central Government and not the State Government.
Similarly, we pay indirect taxes that are liable on the manufacture of goods, provision of services and consumption of goods and services to the State Government. Under the GST, these taxes are likely to be centralised. GST news has caused widespread discussions across the country – some calling it beneficial, while others calling it redundant. Simply put, there won’t be many tax barricades as India will run under a ‘one country, one tax’ system.
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