GST and e-Commerce: boon or bane?
The e-Commerce industry is booming with many start-ups coming up every now and then. From apparels to gadgets, there are startups catering to every consumer segment imaginable. The e-Commerce sector is one of the key sectors affected by governmental measures. One such measure, called the Goods and Service Tax or GST, is a big reformation in the indirect taxation structure which India currently follows. This reform would harmonize the tax base and laws and administration procedures governing it. This, in turn, would minimize the inter-state competition which is detrimental to the nation’s development. The GST bill would ensure that the indirect taxes inclusive of the service tax and excise duty currently levied by the State and Centre would be on the basis of production and not on consumption of the goods or service. By this bill, the government has minimized the incentives of tax evasion thus bringing a lot of illegal transactions to a halt. Easy registration for the start-ups This is definitely a positive development for entrepreneurs planning to start a new business venture. When a new firm is established, it requires a VAT registration from the Sales Tax Department of the concerned State. For a business having two or more branches in different states, the process becomes more difficult and cumbersome due to the diversity in procedures and charges in each state. GST would bring about a centralized procedure and registration which would apply to all the states. This would not only make registration of new business easy but also make business expansion hassle-free and formalized. More companies to fall under the Tax net This is particularly for the SMEs. Before this bill was passed, SMEs enjoyed exemptions in excise duty for turnover less than 1.5crore. The threshold was seemingly high with many companies enjoying its benefits till now. However, this threshold has been dropped to 25 lakh. This would mean that there would be an increase in the number of companies falling into the tax net. Also, this bill is going to have additional compliance requirements which the companies would be required to meet in terms of registration and tax filings. This would drastically increase the compliance cost. This bill would also regularize the tax structure and make the entire procedure centralized. Exemptions for SMEs The threshold limit for SMEs to get a VAT registration would be increased from the current 5 lakh to 10 lakh. Also, SMEs with a turnover between 10 lakh and 50 lakh will have a lower rate of tax. This is a boon to start-ups and new e-Commerce entrants as they would not have to feel the pressure of the normal rate of tax immediately. Decrease in expense and time delay on logistics of goods Currently, many small and big companies face a delay in movement of goods and products between states due to the presence of many checkpoints and small border tax issues. Interstate transportation was not only expensive but also time-consuming. There was also a lot of wastage and product deterioration on the way due to these factors. However, with the new GST, the logistics expense incurred currently by the organizations is expected to go down by about 20% as most of the duties would be cleared off. The movement of goods across the state will be more organized and orderly. The expense incurred in maintaining high stocks is also expected to come down due to the smooth flow of goods and elimination of taxes.This is a positive sign for start-ups like us. Relief for SMEs falling under both service and services category Small businesses and e-Commerce and services companies currently face the necessity to compute taxes in both the product and service sales category. This is highly confusing and a complex situation. But after GST is put into force, this will not be the case. There will not be any differentiation between the business offerings and the GST will not have a separate computation for service and product. The entire tax calculations would be done on the total bill amount and not individually. This would make the tax computation less complex and simpler to comprehend. The GST bill is going to be a mixture of opportunities and challenges for e-Commerce. Though the projections are more to the positive side, e-Commerce companies need to be braced to face the increase in compliance costs and the costs involved in aligning the IT systems to this new advancement.