GST is expected to impact and shape-up India’s $16-billion e-commerce industry.
Similar to the European Union, the politico-economic union of 28 states, a singular tax structure across the country will simplify inter-state transfer of goods, ensure merchant compliances and lead to easier tax refunds.
For startups, which are already grappling with fund-raising issues, GST will take off the burden of complicated tax frameworks, which are currently different for every state. “E-Commerce companies will not have to struggle with the complex regulatory structure. Moreover, sourcing, distribution and warehousing strategies, which are currently designed by companies from the perspective of minimising the tax liability, will undergo a change,” a Delloite report said.
The e-commerce industry is expected to cross $101 billion by 2020.
Run as marketplaces, most e-tailers, including Flipkart and Snapdeal, earn marketing fee and facilitation charges which come under service tax. Under GST, service tax will be levied both by the Centre as well as states. “There should not be any double taxation on the business, which is already running in losses,” said an executive with one of India’s top four e-commerce companies.
The combined losses of e-commerce companies were around R7,884 crore in 2014-15.
“If the government takes into consideration the double taxation, the e-commerce business can gain from the uniform tax structure as it gives us better visibility,” said the executive quoted above.
GST will also boost manufacturing, especially for small and medium enterprises (SMEs). Manufacturers pay 15 types of taxes, which will now be replaced by one tax. In the short term, however, there is likely to be some cost impact.
SME manufacturers, currently exempt (if annual taxable turnover is up to R1.5 crore) from paying excise duty, would have to pay the full taxes if GST is implemented.
“This may bring their products up for stiff competition with those of industry leaders in terms of tax costs involved,” said Rajeev Dimri, leader, indirect tax at BMR & Associates LLP.
The small-scale services sector, including retail, will face higher tax outgo, compared to the current 15%. “Trading entities, on the other hand, should largely welcome GST as it creates a single uniform market for them across the country with improved ease of doing business,” said Dimri.