GST was hailed by online retailers as a game changer as it promised to bring an end to the eCommerce logistics woes. It looked like GST would simplify logistics by allowing a single tax for the unified Indian market.
Anyone who has had chance to deal with online product delivery, knows for sure what a pain it is to ensure smooth and speedy delivery of online orders. Even if one chooses the most reputed delivery partners, one could never be sure that the product delivery would be hassle free.
StoreHippo ecommerce platform, has firsthand experience of the problems faced by online retailers. Let us see what makes logistics such a pain;
- Different rate of entry tax is levied on the same product in different states.
- Some state levy excess tax on certain products, which discourages their business.
- Up to 30 different forms need to be filled before an ecommerce company is allowed to do business in a given state.
- Compliance is complicated and difficult to understand.
- Steep logistics cost at 14 % of the total value of goods as compared to 7%-8% in developed countries.
- Slow transportation speed at 250 to 400 kms average truck distance covered per day in India. For BRICS countries it is 500kms, for USA and Europe it is 700 - 800kms.
StoreHippo ecommerce platform which is also a logistics aggregator, has clients from various e-commerce industry verticals and hence we were looking forward to GST to solve most of the problems related to logistics. At first glance, GST bill was offering evident benefits like:
- Simplified business with a single tax.
- Faster and simpler interstate logistics.
- Lower inventory cost.
- Increased sales and profitability due to lower inventory, logistics and tax burden.
- Easier to run online marketplaces with clarity on taxation.
- Increased manufacturing would give access to richer product catalogue for customers.
However, with further details of the GST Bill coming out, the euphoria has somewhat settled. Online business owners are a confused lot as they have found many a points where the new bill gives no clear guidelines. The Tax structure is far from flawless and some of its points are making it complicated:
No Provision for Returned GoodsIndian e-commerce faces the challenge of returned good ranging as high as 30%- 50%. With no provision for tax adjustment on returned goods, sellers are fearing big losses.
Multiple RegistrationsThe new GST bill needs online sellers to register with every state they intend to do business with. This goes against very essence of the 1 tax norm for the nation and requires multiple registration. This once again creates the same complicated legal loop which is very detrimental for an environment fostering smooth business for e commerce websites in India.
Tax at SourceFor e-commerce, GST allows tax collection at source(TCS) for supplies. No such levy is there for brick and mortar shops or e-commerce selling its own inventory. This can cause problems with refunds and raise working capital. Also, this leads to discrimination against certain business types which further undermining the very core of the new bill.
Accounts Keeping at Multiple LocationsThe bill promised simplicity but one of its requirements is that, accounts related records are maintained at every place the business is done. To make GST simple the e-commerce business owners should be allowed to keep records at a central location which can be supplied further to the authorities as and when needed.
Digital Wallets StatusCurrently digital wallets are not covered in GST which can create issues with payments made using digital wallets across e commerce websites in India.
Tax on FreebiesGST has no clarity on freebies or combo deals and how taxation would be applied on the free items. Currently freebies are not taxed by online retailers. Applying taxes on freebies can discourage the customer from opting for the free item.
ConclusionThe team of experts at StoreHippo (one of the leading e commerce platform providers in India), feels that for GST to really herald a new era of Indian e-commerce, the government should take note of the concerns of the industry and try to provide easy and timely solutions for these loopholes in the new tax regime.
Let’s hope we have a finer version of the Bill in place before 1 April 2017 so that India actually functions as one marketplace.
If you have any concerns about the new tax rule, feel free to share it in the comments below.
Disclaimer: This blog is based on the LinkedIn article written by Mr. Rajiv Kumar, CEO & Founder Hippo Innovations.