Why GST rollout will be a boon for B2B Ecommerce in India

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Once the boundaries created by a state specific tax structure are removed B2B ecommerce has the potential to grow exponentially, benefitting manufacturers and customers alike.

By Swati Gupta

GST, or Goods and Services Tax, is finally set to arrive in India. It has been passed by the Lok Sabha and is pending approval in the Rajya Sabha. The new indirect tax structure will most likely be rolled out from April 2016.

It is being hailed as one of the most vital reforms of recent times, which will not only simplify India’s indirect taxation system, but also be the much-awaited magic wand that will have extremely positive ripple effects on India’s growth story. It is seen as having the potential to transform the country into a global trading hub, as it would make import-export a lot more transparent and competitive. Moreover, a study by the National Council of Applied Economic Research has stated that GST could well boost India’s GDP growth by anywhere between 0.9% to 1.7%.

When implemented, GST will be a single comprehensive tax regime applicable across all Indian states on the sale, manufacture and consumption of goods and services, essentially converting the country into a unified market, while simplifying the complicated tax structure and reducing compliance costs.

It will have a dual structure, which means that it will be levied by both the central and state governments, and will replace a plethora of indirect central and state taxes, like the Central VAT (CENVAT), Central Sales Tax (CST), Central Excise Duty, Additional Excise Duty, Special Additional Duty of customs (SAD), Central Surcharges and Cesses, Octroi, State Sales Tax, State VAT, to name a few. There are some sixteen taxes in all that GST is said to replace.

At present India has no specific tax laws in place to regulate the e-commerce industry. This leads to a fair amount of confusion, as tax is imposed according to the interpretation of local taxation authorities in different states (as was seen in the case of Amazon in Karnataka). However, with the GST, which makes no distinction between goods and services, e-commerce companies will not have to deal with complicated regulatory structures of each individual state.

Under the present system, when goods are sold by a state-specific network of manufacturers, dealers and distributors, they are subject to excise tax (applicable on certain goods), state specific VAT (if the transaction is intra-state) and central state tax at the buyer state (charged if the transaction is inter-state). Under current regulations excise is adjustable against further excise a manufacturer might charge from customers downstream.

VAT is adjustable such that a trader, dealer or distributor pays VAT on the value add component, i.e. the margin on the services provided. However, Central State Tax (CST) is not adjustable and once paid, it cannot be offset by the business. This last point is the main reason why, currently, inter-state transactions are at a tax disadvantage compared to intra-state transactions across many commodities in B2B commerce.

And this is one of the main reasons why GST will change things for the better for the e commerce businesses. Since GST replaces CST, companies will not need to pay the additional tax when dealing with inter-state transactions. This simplifies matters immensely, since now they will not have to worry about which state they are buying the product from.

Supply-Chain Made Easier

CurrentlyB2B E-commerce companies are bound by the tax regulations of different states, their sourcing and warehousing strategies are centered around minimizing taxes, rather than, say convenience, distance or other strategic considerations.
However, with the introduction of GST, logistics decision making will become much simpler. Instead of maintaining several warehouses in different states, companies can now have fewer, larger ones, strategically located to serve several states together. They can follow, what is popularly called, the hub and spoke model, wherein one large center works as a hub and is connected with smaller spokes for seamless flow of products. This would not only simplify logistics and reduce paperwork, but also cut-down operating costs. Additionally, GST will enable goods to be priced without taking into account the destination of the product, therefore profit margins will be easier to calculate.

Once the boundaries created by a state specific tax structure are removed B2B ecommerce has the potential to grow exponentially, benefitting manufacturers and customers alike.

Benefits for SMEs

Once GST is implemented SMEs will no longer be at a tax disadvantage outside their home state. That, coupled with nationwide access that an ecommerce marketplace provides will allow SMEs to compete for business successfully all over India, resulting in business efficiencies, and reduction in middlemen in the supply chain.

Given a uniform tax regime across states, and access to suppliers on a nationwide ecommerce platform, customers too will have much greater choice, can buy directly from manufacturers and enjoy the benefits of lower prices and greater variety.

GST, thus, is going to be a boon for the growth of B2B ecommerce in India.

Swati Gupta is Co- Founder Industrybuying.com

Source: http://retail.economictimes.indiatimes.com/news/industry/why-gst-rollout-will-be-a-boon-for-b2b-ecommerce-in-india/47451930

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