With the Union Budget around the corner, the e-commerce industry is hopeful that the government will have a look at some pressing issues which will help carry on the momentum that has seen this particular sector become one of the, fastest growing industries in the country over the past couple of years.
Budget 2014 was a bit of a dampener with nothing specific about the e-commerce sector but with the government’s keen stance on digitization, things might be a bit different this time around.
“Digital commerce has evolved into a multi-billion dollar sector. It’s impetus on the growth of allied industries like manufacturing, logistics and supplies, further makes it a significant contributor to the Indian economy. Today, the sector is at a pivotal point, with entrepreneurs looking for sustainable yet high yielding business propositions in order to scale-up and build viable business models. The government’s focus is on devising a regulatory and financial framework that takes into consideration distinguished needs of this sector, impact on dependent industries and concerns of offline retail models,” said Sundeep Malhotra, Founder & CEO, HomeShop18.
According to him, the main expectations from the budget primarily revolve around incentives to support back-end operations and an adequate yet simplified foundation to address concerns of all stakeholders.
Uniform taxation and GST have been the major bone of contention between the government and e-commerce players who are eagerly awaiting adoption of GST as well as tax reforms in certain other areas. As Ambareesh Murty, Founder and CEO of Pepperfry.com puts it; movement on GST is one of the most eagerly awaited decisions for the industry.
E-commerce players keen for the govt to bring reforms in GST
Suresh Sharma, Founder and Director of price comparison website iSpyPrice.com, feels that until GST is implemented, the government should relax the tax raj. Another important issue, which was also debated during Budget 2014, is the bringing in of online advertisement under the gamut of service tax. “I feel that if the service tax on online advertisements is abolished, it will motivate internet-based publishing companies to create more valuable content and application for websites. The government should give proper clarifications on service tax levied on advertising income that is earned by Indian publishers in foreign currency. Apart from this, MAT (Minimum Alternate Tax) should be abrogated from the e-commerce landscape,” said Sharma.
Industry expects digital costs to go up post levying of service tax
Explaining the pain points facing e-commerce, Ashish Jhalani, Founder eTailing India and ISeB, pointed out that e-commerce companies struggle with issues such as double taxation, multiple interpretations of taxes related to e-commerce. The industry is looking forward to implementation of GST. “Clarification on service tax between domestic and overseas vendors for e-commerce and export proceed realisation (SEZ) is needed from the budget,” said Jhalani.
The most important factor still remains GST. Though the Finance Minister had earlier declared that it would be implemented over a period of a year, it seems e-retailers would still like the government to allay any lingering fears and have more clarity on how the process is progressing.
Implementation of GST a boon for e-commerce sector
“Bringing consistency and simplicity in the tax regime, particularly related to GST, is an important area where we feel the government should look to fast-track amendments. We are providing accessibility of retail to a wide-spread geographic landscape, reaching even Tier III/IV cities. Thus, GST will help us extend benefits to customers,” said Malhotra.
One reason for this sense of urgency is that some e-retailers have already had tussles with a few state governments over the course of the previous year due to misinterpreted or poorly understood tax laws. Once an umbrella law comes in, it is hoped that these inconveniences will be a thing of the past.
“The elimination of VAT and sales tax and further clarification on taxes will help fortify the e-commerce sector,” opined Ashish Sood , Co- Founder of Youshine. Another thing, says Jhalani, that e-commerce firms are expecting is the implementation of crucial tax incentives in order to boost investments in logistics infrastructure and technologies.
Coming to the issue of FDI, it was interesting to note that though the Finance Minister gave the go ahead for FDI in railway, defence and insurance to be raised to 49 per cent. However, the B2C e-commerce sector had no such joy. In India, foreign investment is allowed in B2B e-commerce but not in B2C, which is why the likes of Amazon, eBay, etc. have entered with a marketplace model.
Praveen Sinha, Co-founder and MD of Jabong opines that FDI is something that the e-commerce industry has learned to live without. However, there are those who still argue about the necessity of liberalization and its importance, especially for new comers to the field. For example, Jhalani feels that most e-commerce companies would welcome clarity on FDI as a strategic variable to their business. “I believe, not just the bigger players, but also smaller e-retailers would see strategic investments by international brands looking to enter and expand in India,” he added.
“Removal of barriers to FDI in retail will be a breakthrough move towards economic liberalism in this sector. So the rapid evolution of digital commerce demands a national e-commerce policy and a regulatory framework that will accelerate smooth growth of the industry,” said Malhotra.
Sood also maintained that FDI in retail will further boost local businesses in terms of quality insights and operational functionalities, while strategic economic reforms and changes in policy framework of taxation will help incentivise the Indian retail ecosystem as well as spell good news for the increasing gamut of online consumers.