GST Bill to Reduce Seller Sign-Ups while E-Commerce Sites Give Sky-High Discounts
Online marketplaces have emerged as one of the most successful e-commerce business models in India. Connecting online sellers with prospective buyers, these digital marketplaces are helping Indian SME’s migration online and escalating their reach across borders and geographies. The prospects for the online marketplaces further bloom with the Government allowing 100 percent FDI in the sector. However, the Goods & Services Tax (GST) is fully equipped to storm the sector, only to improve it in the longer run.
As perhaps the greatest tax reforms in India, the GST Bill endeavours to consolidate and streamline a slew of indirect taxes that are currently levied by the Central and the State government. Furthermore, the bill is set to enable free movement of goods across the nation, with the motto, ‘One Nation One Tax’. However, overhauling policies is seldom easy and hence, the quarter immediately following the implementation of GST appears to be puzzling, especially for online marketplaces. Here’s taking a look at how GST is going to shake things up for the sellers on online marketplaces.
A decrease in seller signups on online marketplaces
The first-month post implementation will witness major variations as the sector will attempt to adopt and implement the changes brought in by GST. The transition will slow down sign-ups as those sellers who are oblivious of the GST framework will be hesitant to become a part of the regime they don’t completely understand. Sellers, who already operate online and wish to further venture into the online space, will have to equip themselves for the entire GST compliance regime. Considering the current disorder due to inadequacy of knowledge and absence of clarity on certain key aspects, complying with the new rules and regulations will bring some challenges for small scales sellers as well as e-commerce platforms. As a consequence, online marketplaces may not witness a lot of activity in the first three months following implementation of GST.
Small-scale sellers to benefit from 20 lakh tax exemption threshold
Under the current system, small scale sellers with turnovers under 10 lakh are exempted from paying taxes. However, the GST bill has increased the tax exemption threshold to 20 lakhs for small scale businesses across India, except for businesses in the North East whose threshold limit remains 10 lakh.
The tax relaxations are going to aid the longevity and growth of small scale sellers on the platform. However, there is still not enough clarity on how specifically the same would be applied. While the 10 lakh VAT exemption was applicable only on transactions happening within the same state of registration, GST aims to unite India as a single market. Hence, the 20 lakh exemption threshold should not be limited to state-wise transactions. However, nothing can be assumed until further notice from the government on this matter. This puts a vast number of sellers in turmoil and may also decrease seller sign-ups on e-commerce platforms.
Sellers lack proper clarity on GST framework
The lack of transparency is not limited to the uncertainties regarding tax exemption threshold. In addition, a majority of retailers are wondering how they may draw the benefits of excise duty or CENVAT on the goods that they have already procured from several sources. The confusion has further discouraged users from buying new stock until the new GST Bill is in function. Furthermore, one significant trend in the pre-implementation period is the escalated discounts and flash-sales on all the e-commerce platforms to clear existing stocks and mitigate anticipated losses.
Tax filing thrice a month under GST
While previously sellers needed to file taxes once a month, GST mandates tax filing thrice a month. This will primarily impact the small-scale sellers, especially the ones lacking the essential digital infrastructure for filing taxes. However, one of the primary benefits of GST and such modifications is that it will teach India to leave behind the traditional ways and adopt digital means in their daily operations.
Though the bill will present some challenging times for the Indian e-commerce industry and small-scale sellers operating in it, it is bound to transform the strenuous taxation regime and bring about uniformity in the process. GST will allow free movement of goods between states, combat red-tapism, and initiate the hub & spoke model and free Indian sellers from the clutches of taxes levied by both the Central and the State government. Besides, currently, there is a huge disparity in the taxes collected by different states. For instance, while Maharashtra charges a whopping 13.5 percent tax on mobile phones, Karnataka levies merely 5 percent. GST will erase this inconsistency, bringing about radical changes and uniformity in the taxation system. In essence, while we should expect a slow first quarter following the implementation, the seller registration, along with the other operations, on e-commerce platforms will subsequently improve once the nation fully adopts the new regime.
