E-tailers set to win big in GST regime

E-commerce companies such as Amazon Seller services Pvt Ltd and Flipcart Ltd are set to be among the winners in the transition to a single national market the proposed Goods and Service Tax (GST) will create.

GST should put an end to hurdles that state administrations have been erecting, amid complaints that online sales—and the hefty discounts they come with—are eroding the sales and profitability of physical retailers, as well as state revenues.

It will mean a shift from the current model of taxing interstate transactions, where the manufacturing state gets the proceeds of a 2% central sales tax (CST) on goods sold in other states. This will make way for a system in which the consuming state will get proceeds of taxes on interstate supply of goods.

The integrated GST (IGST) that applies to inter-state supplies, has central and state components of roughly equal measure. GST, being a ‘destination-based tax on consumption’, is also set to address concerns of state governments that the business models of e-tailers erodes their tax base.

Getting hassle-free access to markets across the country will benefit the e-commerce sector which, according to a January 2017, report by industry chamber Associated Chambers of Commerce and Industry of India, is expected to touch $17.52 billion in turnover by the end of 2018, growing 15% annually.

E-commerce firms typically offer the service of an online marketplace and in some cases, a warehousing facility to vendors, and pay service tax to the central government on any fee or margin received for that. The liability of value-added tax (VAT) to be paid to the state government at the business-to-consumer level is on the vendor.

For example, in the case of an e-commerce company with a warehouse in Karnataka, which facilitates a sale to a consumer in Kerala, the vendor may pay VAT to the Karnataka government, which the Kerala administration would consider as an erosion of its tax base.

Experts said e-commerce firms being asked to provide details of sales by vendors was fair, but holding them liable for VAT payment was not.

“In the GST regime, the vendor has to pay GST and instances of holding e-commerce companies responsible for vendors’ tax payment will come down. In general, GST introduction is good for e-commerce companies as GST is a destination based tax on consumption, unlike central sales tax on inter-state sale of goods which is origin based,” said Pratik Jain, leader, indirect tax, PricewaterhouseCoopers India Pvt. Ltd.