Online retailers like Amazon and Flipkart may see their costs go up 10-15% once the goods and service tax is implemented.
MUMBAI: E-commerce may be the most exciting sector for entrepreneurs and investors in the country, but online retailers may see their costs go up 10-15% once the goods and service tax is implemented.
Industry trackers say that while many other sectors would be impacted by the GST, e-commerce firms such as Amazon andFlipkart could feel the pinch most due to their already high cost mechanism.
The costs would mainly increase because ecommerce firms, or their vendors in some cases, would have to pay the tax even when the goods are lying in their warehouses.They would get the money only when the goods are sold, which could take anywhere between one month to four months.
This would increase the working capital of e-commerce firms that have already piled up huge losses, mostly due to their deep discounting strategy to rapidly increase customer base. “The working capital needs of the e-commerce firms would go up after theGST comes into play as the burden of tax on stock transfer would go up,” said Prashant Deshpande, senior director at Deloitte Touche Tohmatsu India. “So, while now the firms are paying around 12.5% of excise duty before the stocks are transferred, in future they would have to pay the GST rate which would be at least 8-10% more than excise duty ,” he said.
Many e-commerce firms have already approached tax experts to tackle the problem. Analysts say that the e-commerce firms would have to manage their warehouses more carefully and avoid the transfer of inventory across states as this would lead to more taxes and more time to take the credit of the GST in their accounts.
Most firms would have to show the GST as their costs in the debit column and the same could be put in the credit column only after the goods are sold.
The Narendra Modi government failed to push through the GST Bill in the Rajya Sabha this week due to strong opposition from the Congress. But that might be only a temporary breather for online retailers.
This is, however, just a temporary setback for the government as the government is determined to make GST a reality.
The government would make a second attempt at passing the GST in the Rajya Sabha in July as it is seen as a major step to boost government revenues and revive corporate investments. “Nobody should get a thrill by delaying GST,” finance minister Arun Jaitley said on Thursday.
Malini Mallikarjun, partner at BMR Advisors, said that once GST comes into force, then the tax cost structure for e-commerce companies would increase since service tax (payable on rental for space and labour) would be payable at a higher rate than the existing rate of 12.36%.
Source : Economic times