Know The Current Impact Of GST On eCommerce Sector

GST

GST For Magento eCommerce Industry

India is poised to become the world’s second-largest Internet market followed by China. A large population, especially the millennials are leapfrogging the computer era to embrace smartphones. The digital world is changing the rules of customer engagement in the country with a wide availability of affordable smartphones and wireless internet. It helps foster the growth of a new breed of tech-savvy consumers who demand customized user experience with seamless integration.

Magento eCommerce marketplaces like Flipkart, Snapdeal, and Amazon are the flag-bearers of the eCommerce industry in India and help convert millions of Indians into online shoppers. The complex and ever-evolving ecosystem of online marketplaces involves multiple parties and transactions across varied nations. It offers a plethora of international and Indian tax and regulatory issues, which further rise issues in determining the jurisdiction in which the value creation will take place.

While GST introduces most of the required standardization in the commerce landscape, there are numerous aspects of GST that will change the entire business operation. In the last few decades, eCommerce has witnessed unprecedented growth with India pegged as the second largest market in the eCommerce industry. This explosive growth in the sector has given rise to multiple tax issues along with the challenges like rising competition, shrinking profit margins, and so on.

The government is trying to simplify the tax structure by introducing GST and promoting trade while keeping a check on tax evasion. Without any further ado, let’s see how the GST implementation will impact the eCommerce marketplaces.

Standard taxes will result in standard pricing

The current tax structure includes different states imposed with varied VAT rates on the same product. For instance, Karnataka has a tax rate of 5% on mobile phones, whereas Maharashtra records 13.5% on the same. Magento ECommerce design marketplaces list sellers who charge low taxes, making the products cheaper than the local retail costs. The e-retailers often enter exclusive tie-ups to leverage the tax arbitrage. Post GST, the standard tax rates for each product and tax arbitrage will get challenging, bringing the e-retailers and offline sellers on the same platform in terms of costing and pricing.

eCommerce marketplace will result in blocked working capital

With GST, the online marketplaces have to deduct 2% tax per transaction while making payments via Magento payment gateways to the sellers listed on their eCommerce store portal. This tax collected at source (TCS) is handed over as collection towards GST to the government. However, this rule is not applicable to offline merchants and retailers. The TCS locks the capital for a period between 20-50 days depending on the transaction date. Its significant impact on the cash flow forces small enterprises to seek additional working capital or ignore the eCommerce marketplace entirely. After all, it doesn’t offer any envisaged convenience and benefits.

Unregistered merchants won’t survive long in the eCommerce world

The GST registration for every eCommerce store is mandatory if the turnover exceeds 20 lakhs. If an online merchant wishes to sell through the online portals, they need to get registered with professional assistance from a Magento hosting provider irrespective of their turnover. Failing to do it may result in sellers moving out of the online system forcefully. As a result, all online sellers must register themselves and charge taxes at standard rates to create a leveled playground for all eCommerce firms in terms of product pricing.

Compliance issues in terms of refund and returns

The majority of the online products are sold under a return period of 30 days, which translates to about 15-20 million transactions per month. Under such circumstances, the return and refund processes must get completed with utmost care. The returns should get recorded monthly by both parties, and refund adjustments require special attention that impacts the tax liability.

Various industry experts have welcomed the standardization promised by GST, but it also ensures that the tax collected at the source will deter sellers from listing themselves on eCommerce marketplaces and entering the eCommerce market.

Taxed stock transfers

The Model GST Law states that specified transactions without consideration will also get treated as supplies. Intra-state and inter-state stock transfers, between the branches and warehouses of a single search engine optimized online store, will also get deemed as supplies, and subject to GST. Although the tax paid would be available as credit to the entity, it may result in cash flow blockages. For instance, in places where a large number of goods get stock transferred, tax liability will increase at the first stage, which gets offset at the time of final supply by the eCommerce entity.

Valuation issue with discounts and incentives

The “transaction value” is considered as the value of goods/services/products. Whether the eCommerce retail includes the discounts in this value or not, depends on the category they fall in. The discount model has been categorized as follows:

  • Pre-supply discounts: Discounts allowed before or at the time of supply, which gets permitted in the usual course of trade practice and reflects in invoices, will not become a part of the “transaction value.”
  • Post-supply discounts: Discounts offered after effecting supply get included in the “transaction value.” however, it is only the case when such post-sale discount, as per the agreement, is known at or before the time of supply. Such discounts must get specifically linked to relevant invoices.

Summary

The GST on the eCommerce industry has numerous benefits as well, including the removal of cascading taxes, consolidated taxes, and so on. If you are new to the eCommerce world, it is advisable to first do thorough research on the market trends, taxes, and plans.

To get professional assistance, we are here to help. Get in touch with our expert certified Magento developer in India to excel in your online business.

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FAQs

Is GST required for eCommerce?

Yes. Registration under GST is mandatory for all eCommerce retailers and merchants irrespective of their sales turnover. Therefore, prior to commencing business online, all eCommerce operators must get registered under GST.

What is the impact of GST on online businesses?

By consolidating all indirect taxes under one umbrella, GST has made it easier for businesses to calculate taxes and stay on top of tax payments. Retailers can also find that the cost of running logistics and operations has reduced dramatically.

Who pays the GST: Buyer or seller?

The GST is paid by both the consumers at the time of purchasing goods and the sellers while availing the services to their customers.

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