The top bosses of rival ecommerce platforms Flipkart, Amazon India and Snapdeal found themselves on the same page last week -more specifically on the page in the draft GST law that relates to collection of tax at source (TCS) – but even while they cited the negative impact on sellers, many online merchants are making another argument.
The TCS clause mandates online marketplaces to deduct 2% per transaction and hand it over as collection towards GST to the government under the Act. This does not apply to retail sellers offline.
Seller associations such as the All India Online Vendors Association (AIOVA), which represents 1,800 sellers, say that TCS will only hit sellers evading taxes, and said that the issue of capital blocking on online platforms is already a problem for them.
“The TCS clause will remove the problem of tax evasion among many sellers and the ‘unnatural’ competition emerging from it. Secondly, since the ecommerce companies are already holding seller money, TCS will not affect our liquidity,” said a spokesperson of AIOVA. The e-Commerce Sellers Association of India, which was earlier known as eSellerSuraksha, says the clause will create a level-playing field among sellers. “Merchants without proper registration will be forced to move out.This makes a level-playing ground for all online sellers in terms of product pricing. The merchants who evade tax may also quit,” the seller body said.
However, sellers do have some concerns over TCS. “Product returns in apparel ecommerce range between 15-20%. We will be requi red to claim the TCS from the department directly which is a cumbersome process,” said Dhiraj Agarwal, cofounder Campus Sutra, an online-first apparel brand.
Associations such as AIOVA have also made certain recommendations to the GST Council on keeping a threshold limit for TCS based on the business of the online seller, especially if the current VAT liability for the merchant is less than the TCS amount.
Ecommerce companies have said that TCS will deter merchants from selling online and will badly hit the digital ecommerce industry holding up working capital. “Working capital will be hit. Also compliance is an added burden for ecommerce companies. Majority of the products carry a return date of 30 days and given 15-20 million transactions per month and the returns, refunds to sellers have to be done with utmost care,” said a spokesperson for public policy at Amazon India.
“With TCS, capital will be locked away for periods between 20-50 days depending on the transaction date. The significant impact on the cash flow will force smaller firms to seek additional working capital or ignore the ecommerce marketplace altogether, as it may not offer envisaged convenience and benefits,” said a spokeswoman for Snapdeal.
The Economic Times, 14 February 2017