Lack of clarity on GST to hurt vendors, say e-commerce firms

There is ambiguity around rules as they are coming in bundles: Shopclues

E-commerce companies in India are saying that there is still lack of clarity on GST compliance, which will affect the transition of their vendors to the new regime and in turn hurt their businesses.

Under the current laws, vendors will be forced to register in their state of origin as well as in the state where a sale is happening. Apart from lobbying to not have themselves registered in every state and union territory in India, e-commerce companies are making a case that the requirements will increase cost of compliance, which will hurt smaller sellers on their platforms.

“There is ambiguity around rules as they are coming in bundles. There are challenges around TCS as well as documentation required for registration. We are prepared for compliance but we do not know if merchants are,” said Arun Goel, VP, Products at Shopclues.

E-commerce companies in India cannot work on an inventory model and rely on lakhs of sellers to sell their products online. Shopclues, for instance, claims it has 500,000 sellers listed on its platform, majority of whom are small and even individual run businesses.

By keeping sellers with a turnover of less than Rs 20 lakh out of the GST regime, e-commerce companies will have to pay full tax without the benefit of input tax credit, which will no longer incentivise the online players from selling their products. Even if sellers do cross the Rs 20 lakh turnover criteria, the cost of compliance might be too high for them.

“The cost of compliance for sellers will go up because they will have to register with many states, pay tax, file returns and reconcile invoices. It is a real cause for concern for the industry, and the e-commerce guys feel that while the bigger boys might be able to comply, for the smaller vendors the volume cost and the compliance cost may not commensurate,” said S Satish, Executive Director at RSM Astute Consulting Group.

While GST will benefit vendors and e-commerce companies by the way of removing entry tax and providing IGST credit, it will be more advantageous for larger vendors than smaller ones.

E-commerce companies have also raised a red flag over 1 per cent TCS saying that small vendors who earn margins of 5-6 per cent could see as much as 20 per cent of their working capital getting stuck due to the procedures.