With GST, there would be uniformity in imposed taxes: Krishan Arora

Also says, while compliances may slightly increase, the same would be simplified

With the central and state governments laying down the groundwork for the roll-out of the goods and services tax (GST), Karan Choudhury spoke to Krishan Arora, partner, Grant Thornton India LLP, on how the new indirect tax regime would impact the e-commerce sector.

How is the e-commerce industry preparing for the GST roll-out?

E-commerce players are getting detailed GST analysis undertaken to assess impacts and changes on various facets including financials, cash flows, working capital, IT changes, and compliances.

Do you think the industry would be looking at restructuring warehouses as there would be no area-specific advantage left?

Currently, warehousing strategies are tax-oriented, which restricts effective utilisation of available resources and leads to logistics efficiency. With the GST in place, there would be uniformity in imposed taxes. 

Companies may consider re-structuring warehousing strategy, keeping in mind business imperatives and not tax. For example, a company might have one big warehouse at a central location, which might serve multiple states, leading to a decrease in the number of warehouses. Alternatively, companies might opt for warehouses at specific locations on the basis of a hub-and-spoke model.

Are companies aligning its systems with input tax credit? How are they re-structuring your IT preparedness?

There are various changes an e-commerce player would be required to make in its enterprise-resource-planning platform. To illustrate, a few key changes made in IT systems/ formats are the following: Each invoice will need to include a Harmonised System of Nomenclature (HSN) or Service Accounting Code (SAC) code, the Place of Supply should be determined based on GSTIN for B2B transactions and delivery address for B2C sales, tweaking to be done to deduct and account for TCS, tracking mismatches for input credit, return filing, etc.

Will they need to hire more people to handle the paperwork, which might increase due to GST implementation? By how much would the overall costs increase?

While compliances may slightly increase, the same would be simplified since every state would have similar compliance requirements/formats, which can be done online, sitting at one place. Therefore, depending upon the volume of business transactions, the companies would need to assess their additional manpower requirements and corresponding costs.

If someone returns the goods delivered by an e-commerce firm, its input tax credit for TCS would be delayed. How will a company cope in such situations?

TCS would be collected on the ‘net value of taxable supplies’, which is net of goods returned during the month. Hence, the chances of a delay situation in claiming input tax credit against TCS may be remote.

Vendors will have to go for multiple registrations in states. Will those not increase the burden on them and hence the business of e-commerce companies?

Sellers or suppliers on e-commerce platforms are obligated to register under the GST, regardless of how much they sell. Currently, e-commerce companies which store goods received from sellers at their warehouses and supply to end users are registered as additional places of business under the local value-added tax (VAT) by sellers, and e-commerce companies do not register under VAT. 

Under the GST, both e-commerce companies and sellers would have to simultaneously register these warehouses as principal and additional places of business, respectively. This could prove challenging as these warehouses often lack physical segregation between the goods of different sellers.