GST, a cause of worry for online marketplaces

Leading e-tailers in India such as Flipkart and Amazon India are nervous about the draft on goods and service tax (GST) which aims to bring e-commerce companies under its purview. It is the clause relating to tax collection at source which is the cause of worry. This clause will hurt the sellers who operate on thin margins to offer products at lower rates. This means, they will either have to pass the tax burden onto the consumer or take a cut in their own earnings. It is bound to affect smaller players who do business on e-commerce platforms. The clause, not applicable to offline retailers, will hurt the working capital requirement for the sellers as they work on small margins.

Also bookkeeping will become difficult for e-commerce companies because the fresh set of guidelines will make it more complex to deal with some aspects such as returned goods. As a result, the accounting process will have to undergo a change to comply with the new rules.

The GST rules are not totally clear. For instance, it doesn’t address how the government plans to impose GST on peer-to-peer platforms selling used goods such as Quikr and Olx. But e-retailers are hopeful that the government will clear all the confusion soon. Online marketplaces have been waiting for the GST law to help them resolve tax conflicts with various states like UP, Karnataka and Gujarat who were coming up with new laws to tax online sales. Under GST, tax collected will be paid to the consuming states by the government. The GST law is likely to bring online marketplaces including those selling services under a tighter tax net.