GST: Online Sellers Welcome 1% Tax Collected At Source, E-Commerce Firms Fret

India’s e-commerce firms lost the GST battle after months of discussions with the government and representation through sectoral bodies.

The GST Council on Friday decided to levy an up to 1 percent tax collected at source on e-commerce companies while making payments to suppliers. Once the new indirect tax regime kicks in, e-commerce marketplaces will deduct a portion of the amount payable to suppliers and remit it to the government.

And while e-tailers are disappointed, online sellers have welcomed the move, saying it will check tax evasion and bring transparency in this otherwise unorganised sector.

In an earlier interview with BloombergQuint, Amit Agarwal, vice president and country manager at Amazon India had said that tax collected at source, if levied, can put up to 1.8 lakh jobs in the industry at risk, and small and medium retailers using the marketplace will be the worst affected.

To be sure, the government’s decision will check evasion by online sellers, but e-commerce firms will now be subject to added compliance burden, Rajeev Dimri, leader of indirect tax at BMR & Associates told BloombergQuint over the phone.

“Data shared by the e-commerce operators should in itself serve well to check tax evasion on the outward supply by e-tailers. GST should be enabling to the businesses instead of adding such a huge compliance burden.” +)  – Rajeev Dimri, Leader-Indirect Tax, BMR & Associates

GST will be positive for the sector on the supply chain front with improvements in the movement of goods and simplification of the warehouse footprint, said Ananth Narayanan, chief executive officer of Myntra and Jabong, However, the 1 percent TCS will impact the working capital of sellers, he told BloombergQuint over the phone.
Sanjay Sethi, co-founder of Shopclues, concurs with both Dimri and Narayanan.

“One percent TCS is a clear delegation of government’s responsibility to corporate. It adds additional burden to already stretched resources of marketplaces who support upwards of 5 lakh MSME and SME businesses.” – Sanjay Sethi, co-Founder, Shopclues

Small businesses with a turnover below Rs 20 lakh which sell on online platforms will have to register for GST, something offline businesses do not require. “This adds more friction for small businesses who want to come online. This is not the level playing field between offline and online businesses we expected from the government via GST.” Sethi stated.

Without commenting on the specifics of the impact, an Amazon India spokesperson said the company is working on enabling its seller ecosystem to be compliant with GST regulations. “As always, we will work customer backwards to ensure they are not inconvenienced.”

Online Sellers Welcome TCS
Despite the likely impact on their working capital, online sellers and the sellers association welcomed the move citing the transparency it can bring to the system.

“We are glad that tax collected at source has been finally applied on payments by e-commerce companies. This will keep a check and balance on the marketplaces and wipe out tax evading sellers.”
All India Online Vendors Association Spokesperson

“There are number of sellers who sell online and show themselves as small time sellers in books and evade taxes. With 1 percent TCS, the moment a seller will sell online, government will get the exact data of the sellers who are selling online,” said Mohan Goyal, owner of Om Parkash Goyal & Sons, who sells on online platforms such as Amazon and Snapdeal.

Snapdeal declined to comment. Flipkart did not reply to an email seeking comment.