GST on e-commerce marketplace: Here is all you need to know

Narendra Kumar

03 Apr, 2021

GST is one of the much-awaited legislation that is expected to bring desired standardization in Indian taxation arena. The idea is to replace innumerable taxes with one tax that is applicable across the length and breadth of the country. Every business owner is waiting for this tax to be applicable with bated breath. The commerce landscape of the country is expected to witness a sea change & impact of GST once the tax is applicable. Here, we will analyse GST Impacts on E-commerce. Let’s have a deep dig at the impact of GST on the e-commerce marketplace and what you need to know if you’re an e-commerce player. This article is describing GST on e-commerce marketplace.

What is GST?

Let us first understand what GST is all about. Goods and Services Tax, also referred to as GST is expected to bring about a revolutionary change in the taxation system of the country. Both online, as well as offline businesses, are preparing themselves for this change wherein they will have to move from the traditional form of taxation to this latest tax system. The businesses will also have to make their processes GST compliant. Moreover, right now there is an atmosphere of uncertainty and people are unaware of how this latest taxation system is going to affect their businesses.

The basic objective of rolling out GST is to standardize the taxation system followed in the country. Right now, we have a lot of different taxes, some are applicable in all the states while some are not. Having one tax across the nation will help regulate the taxation process and make business operations simpler and streamlined.

Overcoming myriad tax issues

With unprecedented growth in the field of e-commerce in the past few years with India occupying one a prime position, multiple tax issues have cropped up which has created ambiguity and obscurity. With GST, the challenges of multiple taxes can be faced with ease and convenience.

Steps were taken by the Government

The Government is taking proactive steps to help change the present uncertain situation by bringing GST which is going to standardize the tax system across the country. It is not only expected to promote trade in the country but also help keep tax evasion in check.

GST Impacts on E-commerce Marketplace

GST is expected to bring notable changes in the e-commerce arena. Some of the major GST Impacts on E-commerce^[1] are discussed as under-

Standard Tax will keep prices in check

Before understanding the impact of GST, we must understand what happened in the previous tax structure. Previously, different VAT rates were imposed by different states for the same products and goods. If Maharashtra levied 13.5% VAT on mobile phones, Karnataka levied 5%. Thus, there was a huge disparity in taxes in different states for the same products. As far as an e-commerce platform is concerned, the sellers sell the products at a cheaper rate than the physical marketplace by lowering the taxes levied on the products. This way, customers get to buy the same products at a cheaper rate than the local retailers. Many times, the online sellers have tie-ups with major sellers so as to enjoy tax arbitrage. After GST, this tax arbitrage is not going to be possible as there will be standard GST rates for every product across the nation. This way, offline and online sellers will be on par regarding product cost and pricing.

Blocked Working Capital Issue

Once GST is rolled out, online sellers will have to slash 1 per cent tax per transaction when making payments to the listed sellers on their online interface. The TCS or the tax collected at source will directly go to the Government as GST, with offline retailers being an exception to the rule. The capital as tax at source will remain locked within 20-50 days. This will have quite an impact on the flow of cash, and this will spur small businesses to seek more working capital to sustain in the competitive business place. With no more benefits available trading online, many businesses may avoid working in the e-commerce marketplace.

Unregistered merchants losing the favour of e-commerce space

It is important to understand that GST registration is compulsory for businesses enjoying an annual turnover of Rs 20 Lakh or more. In case a seller wishes to sell his products through an online platform, he will have to get his business GST registered. If he fails to do so, he will have to leave the online system. Thus, post-GST, sellers will have no choice but to register themselves as per GST and pay taxes as per standard taxes thereby creating standard product pricing.

GST Compliance Issues 

When selling products online, the sellers offer a return date of one month that is almost 15-20 million transactions monthly. The refunds and returns need to be taken care of. In the case of returns, monthly filing needs to be done by both parties. Similarly, the adjustment about refunds should be dealt with special attention regarding tax liability.

Where tax standardization is a welcome move, a lot needs to be seen as far as GST Impacts on E-commerce and other sectors.

Read our article:Effects on Taxpayer Under Revised GST