The GST is being comprehensively planned to take the maximum number of goods and services under its ambit. The purpose is to enlarge the base for collection of the taxes. The online retail and ecommerce platform are very much on the anvil of being included in the GST bandwagon. The e-commerce market is around US$5 billion presently and online retail is likely to add substantially to these figures in the future. With the new start-ups coming in a big way the online retail is stipulated to be the sunrise industry.
Keeping in mind that the e-commerce is going to boom in the next few years care would have to be taken for the taxation on this sector under the GST. Any drastic or sweeping regulations under GST might nip the industry in the bud. That will mean strangulating a potential growth sector for the economy.
Since the GST is destination based it will be levied at the point of delivery. In case of online retail also place of supply rules will be applicable. This means that all the three types of GST, which is Central GST, State GST and Integrated GST, will be applicable. The online retail sales are pan India in nature and would involve both intra-state and inter-state movement of goods and delivery of services.
Banking, telecom and insurance are also having a substantial coverage under e-commerce. In these services it is very difficult to locate the recipient of the service. This implies that the place of supply rules will have to be drafted carefully so that the India spread is easily accounted for without causing any hindrance to the e-commerce sector.
The exports through online retail are going to be treated at zero rates for GST. This will help in promoting the exports from the country and also make them competitive in the international markets. The only factor that needs to be seen would be the refund on the input tax credit to the online retailer, so that his production costs do not go up.
The Central Board of Excise and Customs is already preparing model legislations for the roll out of GST. These will be put up for comments from the stakeholders from the online retail industry after the parliament approves the GST constitution amendment bill. As is already known the government has proposed for a single GST rate which will subsume excise, service tax and other duties and levies.
It is quite likely that the international retailers like Amazon, Etsy and Book Depository will be encouraged to register for GST. Any purchase made from the international retailers irrespective of the amount of purchase will be taxed under GST. However, it is not clear yet how the government plans to enforce the expanded tax, and how much it will cost to implement.
Companies like Flipkart and Snapdeal are paying around 12.5% excise duty before the stocks are transferred. In the GST environment they will have to pay at the GST rate which would be significantly higher than the existing excise rate. The cost of sale will go up for the online retailers which may affect them adversely.