India is second biggest online marketplace after China and the new Goods and Services Tax (GST) is assumed to bring positive changes; however, ambiguity still remains.
While the finance ministry of India predicted a growth of 14 pc in revenue after GST, experts believe that this tax reform will gradually drive India towards a digital economy. In an evolving marketplace where e-commerce is fast gaining traction, the online marketplace model in India emerged as a success story despite issues of indirect taxes, changing FDI policies and regulatory norms.
Sandeep Ladda, a leader of technology and e-commerce said in an introductory statement in a report, “Online marketplaces are on the rise and companies like Flipkart, Snapdeal and Amazon are the flag-bearers of e-commerce in India and are responsible for converting millions of Indians into online shoppers.”
Vivek Mishra, a leader in indirect tax states in the report, “The companies will have to follow the ‘whole of business’ approach for GST impact assessment and implementation, where tax and business advisory teams work together to provide a seamless service to clients that cover all necessary business aspects. Only then will the sector be able to utilise its potential in this market.”
To understand how the proposed GST regime will impact online businesses as well as the key factors that will come into play, here is a summary.
GST will certainly impact
Addressing the indirect taxation in India that has crippled business environment in the country, GST was proposed as a comprehensive taxation system avoiding multiple and ambiguous taxes. The introduction of GST is the most awaited and single biggest tax reform in India. It intends to rationalise the current indirect tax regime, thereby providing a stable economic environment favourable for growth and development.
The online marketplace maintains an online listing of all available products on its website. Orders from consumers are taken on the website and passed onto the respective vendors by the e-commerce player. Further, the online marketplace may also provide a facilitation centre where vendors can stock their goods, which are then dispatched to the customers as well as logistics services.
Under the current regime, online marketplaces charges service tax to the vendor for providing facilitation services, however, the online marketplaces under the GST regime would charge Central GST (CGST) + State GST (SGST) depending on the nature of a transaction. Such taxes would be now available as credit to the vendor.
The impact of GST is presumed as a possibly higher tax rate on the output side according to the report. All output taxes to be credible on the provision of services to the seller while the online marketplace can also claim the credit for all taxes on the input side (currently taxes on procurements becomes cost). No concept of centralised registration or multiple registrations may be required; however, the impact on pricing can only be analysed keeping in mind the interplay between tax rate and credits.
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