Find Out If E-Commerce Players Should Get an Exemption from GST

Ashish M. Shaji

05 Apr, 2021

The Good and Services Tax in India has been doing quite some rounds in recent months. There have been many industries who approve of the GST tax, whereas there are many that oppose the tax as it would affect them negatively. Overall, the GST tax in India has been approved by the Central government and is implemented from 1st July 2017. In this article we described about Find Out If E-Commerce Players Should Get an Exemption from GST.

What is GST?

GST (Goods and Services Tax) is an indirect tax^[1], which is comprehensive in nature and is applied to many goods and services to centralize the tax of the state and central governments. It streamlines all the taxes into one single channel and would make it easier for the consumer to pay the tax on the goods and services. Here, we will analyse if there should be GST exemption for the E-commerce sector.

Many industries have been positively affected by the GST, and at the same time, some are protesting against it as it would cause them huge losses. The e-commerce sector, which has been up and booming in recent years, has asked for an exemption from the GST registration process. There are many functions that an e-commerce company carry out such as buying, selling, delivery, reverse delivery, and much more. It becomes difficult to differentiate the taxes for each kind of activity that is carried out by these companies.

With the GST laws going into effect, companies will have to pay taxes for many activities that they are carrying out and each type of company would fall under a different GST slab.

Objective of GST

The purpose of introducing Goods & Service Tax in the country is to streamline all the legal activities and not have any room for leaks and cracks in the way the business is done. It is being put in place in order to benefit the people living in the county and earning their money with integrity. It will legalize all the activities that are being carried out by all the industries and compel them to pay the taxes according to their sector in order for money to generate in the economy and contribute towards the growth of India.

E-commerce Companies’ Defence

A lot of e-commerce companies have not been euphoric about these new regulations and have therefore stated a few points to the government to allow for GST exemption for E-commerce players, such as follows:

• They are only the platform for vendors and customers and should not be heavily taxed with GST for being the mediator.
• They claim to be the service providers and hence should not be taxed on the services given by them to the vendors or the customers.
• They claim that the vendors should be paying the GST as they use online websites as their portal to reach the consumers.
• They also claim that they do business on small portals and hence should not be liable to pay GST.
• Most e-commerce companies are start-ups and are only aiming to provide platforms for buyers and sellers and hence no tax should be imposed on the mediating channel of e-commerce.

The government, however, is not satisfied with these points as they feel that e-commerce companies are carrying out business and should be liable to pay the GST. They are using the online portal to sell goods and services and should, therefore, come in the tax bracket of GST.

The e-commerce sector has grown tremendously and has also attracted competitors, and hence become liable to pay taxes to the government. They have been generating millions of dollars through their businesses, they are becoming liable to fall under the tax bracket and abide by the new rules set for paying Good and Service Tax.

GST Law for e-commerce companies

E-Commerce companies would be undergoing a lot of change due to the new GST laws, such as follows:

• E-commerce companies that buy and store stock and then sell it will have to pay 17-18% GST as opposed to a 12.5% excise tax, which is used to pay previously.
• There will be a tax imposed on the goods that have been stored in the warehouse.
• They could soon expect a different tax slab for services such as gift vouchers, e-wallets, advance receipts, and much more.

Challenges for e-Commerce companies

GST will also bring several challenges for e-Commerce companies as they would have to revise their entire business plan and to work with the company to pay the extra tax that will be imposed on their sector.

It would face certain challenges while coping with the GST laws, such as follows:

• The warehouse where the e-commerce companies hold the good would have to be registered under the GST as well as the sellers who are selling the goods on that particular website. This would be challenging for the company as they hold the good of many sellers in a single warehouse.
• Since all the supplies have been made taxable under GST, the movement of stock from a seller to the warehouse would also begin to fall under this category and harm the seller as well as the company holding the stock.
• The companies and retailers will have to upload the GST invoice details of each transaction, and that is to be matched by the GST system. Failing to match the invoices, the seller would be facing penalization.
• Cash flow and TDS will be affected under the GST law.

Conclusion

Since it is a new change that is being brought to a complicated economy, the government will have to strive to work hard and make the Goods & Service Tax law fall in place for each sector of the industry and keep implementing more understandable policies which can be followed by every businessman.

Most likely there won’t be any GST exemption for E-commerce players from paying the GST as they have been generating great profits and money and are going to be compelled to pay the taxes. There are many activities that still need to be figured out by the government as to when and how will they fall under the GST tax slabs and make the law more understandable for these companies.

Read our article: Government Expected to Impose GST on Brand Names and Logos