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GST Implication for Ecommerce Players

Updated on: Jul 6th, 2021


4 min read

Given the ambiguity and litigation in the present tax regime, GST has been an important point of discussion in recent times. GST is expected to provide relief from the current hurdles. For e-commerce companies, GST is particularly interesting because the model GST law specifically proposes a tax collection at source (TCS) mechanism as well. Under GST, e-commerce has been identified as “Supply of goods and/or services including digital products over digital or electronic network” 

An e-commerce operator is also defined to include every person who directly or indirectly owns, operates or manages an electronic platform that facilitates the supply of any goods and services. Under the TCS mechanism, an e-commerce company is required to deduct tax the rate of 1% of net value of taxable supplies. The same tax has to be deposited with the government.

Although GST unifies myriad indirect taxes and e-commerce companies will not have to bother about state governments imposing an entry tax on goods sold online or VAT on non-declaration of warehouses, etc, the proposed tax collection have left the e-commerce companies a little unsettled.

Furthermore, accounting for cash on delivery (COD), returns and cancelled orders shall impact the cash flows of the operator. Return or cancellation rate in India is approximately 15-18% and more than two third of the transactions are on COD, reconciliation for which happens about 7-15 days later. This would pose a burden on the operators for seeking refund in case of cancelled or returned orders on which tax has already been deducted. Moreover, the operators shall have to manage their accounting and reconciliation accordingly.

Also, there shall arise circumstances wherein the goods are returned due to cancellation or defect on whose supply TCS has been levied although the supply eventually did not materialize fully. With the increase in the volume of transactions and submissions of various statements, compliance cost for the operator shall certainly rise. Under GST, e-commerce players will have to initiate stock-transfer of goods from vendor to warehouse or one warehouse to another.

Currently, stock transfers are not liable to any tax, with the exception of entry tax. But under GST, interstate stock transfers will be liable to IGST. This could have a severe impact on Micro Small and Medium Enterprises (MSME). In conclusion, the country is eagerly looking out for the rollout of GST. The regime focuses on creating a single market for everyone and will introduce destination-based taxation.

But the government should ensure GST eases regulatory norms to benefit e-commerce companies by further accelerating their growth and attract more investments. It is imperative that the government makes efforts to make the law clear and industry-friendly so that the industry and the economy benefits as a whole.

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Quick Summary

GST is a crucial topic in tax discussions, especially for e-commerce companies due to the proposed TCS mechanism. The operators may face challenges with the new tax deductions, including managing COD, returns, and cancelled orders. Stock transfers under GST will now incur IGST, impacting MSMEs. The government needs to ensure clarity in the law to benefit the industry and the economy as a whole.

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