download (23)GST, or Goods and Services Tax, is finally set to arrive in India.It is being hailed as one of the most vital reforms of recent times, which will not only simplify India’s indirect taxation system, but also be the much-awaited magic wand that will have extremely positive ripple effects on India’s growth story.
When implemented, GST will be a single comprehensive tax regime applicable across all Indian states on the sale, manufacture and consumption of goods and services, essentially converting the country into a unified market, while simplifying the complicated tax structure and reducing compliance costs.
It will have a dual structure, which means that it will be levied by both the central and state governments, and will replace a plethora of indirect central and state taxes, like the Central VAT (CENVAT), Central Sales Tax (CST), Central Excise Duty, Additional Excise Duty, Special Additional Duty of customs (SAD), Central Surcharges and Cesses, Octroi, State Sales Tax, State VAT, to name a few. There are some sixteen taxes in all that GST is said to replace.
At present India has no specific tax laws in place to regulate the e-commerce industry. This leads to a fair amount of confusion, as tax is imposed according to the interpretation of local taxation authorities in different states. However, with the GST, which makes no distinction between goods and services, e-commerce companies will not have to deal with complicated regulatory structures of each individual state.
VAT is adjustable such that a trader, dealer or distributor pays VAT on the value add component, i.e. the margin on the services provided. However, Central State Tax (CST) is not adjustable and once paid, it cannot be offset by the business. This last point is the main reason why, currently, inter-state transactions are at a tax disadvantage compared to intra-state transactions across many commodities in B2B commerce.
And this is one of the main reasons why GST will change things for the better for the e commerce businesses. Since GST replaces CST, companies will not need to pay the additional tax when dealing with inter-state transactions. This simplifies matters immensely, since now they will not have to worry about which state they are buying the product from.
Benefits for SMEs
Once GST is implemented SMEs will no longer be at a tax disadvantage outside their home state. That, coupled with nationwide access that an ecommerce marketplace provides will allow SMEs to compete for business successfully all over India, resulting in business efficiencies, and reduction in middlemen in the supply chain.
Given a uniform tax regime across states, and access to suppliers on a nationwide ecommerce platform, customers too will have much greater choice, can buy directly from manufacturers and enjoy the benefits of lower prices and greater variety.
GST, thus, is going to be a boon for the growth of B2B ecommerce in India.
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