With the countdown for the rollout of the Goods and Services Tax (GST) drawing near, ecommerce players in India have stepped up efforts to press for a change in the clause providing for tax collection at source (TCS). They have told government representatives of the likely impact of TCS on sellers on their marketplaces and how it will hit low-profit margin categories.
Online marketplace Amazon India recently reached out to sellers on its marketplace with a survey intended to map the perceived impact of TCS on their businesses. While Flipkart refused to comment on the efforts they have taken in this regard, ShopClues, which works with a long tail of over 5 lakh merchants on its platform, indicated that it has spoken to government officials (not to the GST Council). They have informed them of their sellers’ perspectives on TCS.
In February , Flipkart, Amazon India and Snapdeal had come together to request the government to reconsider the TCS clause at a press conference hosted by the Federation of Indian Chambers of Commerce & Industry (FICCI).
The TCS clause mandates online marketplaces to deduct 2% per trans action and hand it over as collection towards GST to the government under the Act. This does not apply to retail sellers offline.
This also implies that online marketplaces will be require to revise their processes and systems to comply with the provision. The expenditure for compliance to this clause will be considerable to the marketplace, according to an internal study done by Amazon India on the impact of TCS on its sellers.
The report also points out that TCS will negatively impact the working capital of small sellers, indicating that categories with low-profit margins will be hit the most. These categories include grocery, where Amazon is making an entry through its Amazon Now initiative, personal care and beauty and others such as apparel and furniture, where returns are as high as 15-20%.
An apparel seller ET spoke to indicated that “additional paperwork and working capital cost will be the immediate impact. Also, sellers in the high velocity business (referring to top-selling categories such as apparel) will be affected.”
However, the All India Online Vendors Association (AIOVA), a representative body of sellers across different marketplaces, says that it sup ports the TCS clause.
“Amazon wants to remove the TCS clause as it will hurt the tax-evasive model of Cloudtail. We have been approached by Amazon many times asking us to request the GST Council to remove this provision but sellers have given full support to the provision. Till now, marketplaces were on ly making statements on behalf of the sellers without reaching out to them. Amazon is the first to actually discuss this matter with sellers.
We have already written to the GST Council that we welcome this provision and any plan to remove this provision will be against sellers’ interests.”