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Impact of GST on E-Commerce

May 12, 2017

E-commerce/Webify/Online business is the trending and modern way of business methodology. It is nowadays the most preferred way of doing business as compared to the traditional physical stock business. The basic reason of its rise is its wide reach to every segment (Age, Price, Location, Gender, Products & Services) with minimum cost investment. E-Commerce works in a different way than other conventional businesses in India. The Foreign investment is currently pumping huge money in online business; their unique operations model has been challenging to government on understanding and applying taxes to online businesses.The demand for GST in India was to upgrade the Indian Tax System and make it par with the other countries where GST is already applicable.

The impact of GST would be considerably huge in industry sectors, product manufacturers and distributors due to its broad-based consumption tax in several ways. Maximum Online business (E-commerce) companies have invested money on tax experts to deal with the problem and are finding solutions for easy GST implementation.

The 5 important GST impact on eCommerce:

Migration to the New System of Taxation:

With the introduction of the new tax regime, an important factor is migrating and adapting quickly to the new policies. Hence, even for an eCommerce it will be important to have an easy migration with their existing ERP system or a new system. The operations of eCommerce are spread Pan — India, hence, it becomes more important for the company to have a system strong enough which will help them calculate the huge interstate and intra state transactions along with GST for the goods.

Place of Supply Rules:

With GST in India being implemented in April, 2016, the Revenue Department is planning to implement ‘Place of Supply’ Rules which will be applicable based on destination and levied on the point of delivery. Since eCommerce has a Pan — India geography, this will help in locating the supply and whether the supply is inter or intra state which is very important for GST calculation since it will be a single tax regime for Centre and state.

GST Taxation Reports:

For bigger and popular eCommerce sites like Amazon, Flipkart, Snapdeal, etc. there is are a lot of issues faced with respect to logistics and warehousing since they have more than 100 sellers on their platform that come together to sell their products using the eCommerce platform. Over here, periodic and regular reporting is required for taxation and record purposes. ERP will be required to provides extensive reports to address GST transactions on periodic basis.

Supply Chain Management needs to be effective:

With GST in place, the eCommerce businesses are set to reap the maximum benefits. With a complex and multi-tier supply chain system, there are a lot of paperwork, reporting and compliance’s also involved. GST will benefit these eCommerce by removing the complexities that the multi-tier supply system along with lesser paperwork and lesser compliance. Being a single tax regime, being applicable in Center as well as State, there will be transparency and ease in transport of goods, esp. for eCommerce business who sell goods across many states.

The Costs will be Higher:

On a flip side of GST Impact on eCommerce, the costs for the eCommerce industry will likely rise with GST due to the high costs involved in storing and warehousing of the goods. Even if the goods are not sold, the company will be needed to pay the tax and can only reclaim it once the good has been sold. This will likely increase the working capital of the eCommerce firm and may end up paying GST tax higher than the excise which is currently levied on them.

This article was first published on LinkedIn by Ankita Parakh

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