Talking of GST’s impact on E-commerce, there is nothing better than a parallel built on discounts for ease of comprehension. Think of GST as a discount on taxes…….a permanent one at that, come 2017 (or whenever it really gets implemented. We know our legislature, don’t we?)
Yes, it’s a reform, and a long pending one at that (dial back to 2006 when it was mooted and rejected for the same reasons it’s being approved now) GST takes care of the compounding effects of taxes, which brings down the overall MRP. That’s for the consumers to rejoice.
There are many more benefits though for the business class but it’s hard to define them with the current state of exclusions and exceptions to GST. Ease of doing intra-state businesses, lower CAPEX, simpler tax calculations, more transparency, all sound great but the businesses will bloom or flounder on what the magic rate would be.
Also remember, GST will set a levelled playfield for offline retailers too especially if all verticals of e-commerce infrastructure are not considered. So is GST a home run or yet another challenge for the fledging e-commerce sector?
What’ s Your Number, GST?
Onlookers, spectators, and the global investors would keep their eyes and ears open for the final GST tax rate. Anything above 18% would be the undoing of the benefits GST promises. Yes, there will be certain benefits for certain sectors like electronics however others would bear the brunt.
Did you say why?
Reason: tax sops.
Textile, as a whole, enjoys most attractive sops. A uniform GST would therefore convert into more taxes. And going by figures and projections, fashion e-tailers are betting big (acquisitions, new niche players). In this scenario even the most nominal GST would mean higher MRPs.
A successful GST would be a function of the tax rate. The best GSTs across the globe had lowered rates and consequently increased tax-payer base (New Zealand, Canada are stellar examples). Remember global runaway GST successes have been built on lower GST, with in fact, certain decrements.
Too early to celebrate
The good news is GST will have exemptions and exceptions; the bad news: GST will have exemptions and exceptions.
What’s been sidelined and surprisingly so is crude oil (poking thorn from the list I read).
From the very inception of e-commerce and symbiotic verticals like logistics, packaging; fuel alone has been the biggest cost pile on. Logistics aren’t easy, reverse logistics even more so and at every step fuel overheads eat into the bleeding margins that e-commerce is struggling with. If logistics don’t get the much-needed fillip (something that e-commerce players were waiting to hear), just the ease of starting logistic businesses may not be enough. Worse is the revised MRPs may well enable offline to reinforce itself.
The Sharp Balance Blades
There are a few sectors that may benefit on the e-commerce front. A higher cost on textiles (with SOPS being nulled for uniformity) even with easier logistics (hypothetically), smallest of taxes could still mean higher MRPs for the consumers. The balance may therefore tilt towards offline retail more or e-tailers need to be ready to take more cuts.
GST also mandates tax collection at source, which means e-tailers that so far passed on all the money, except logistics, would now have to deploy more resources for pure taxes, further reducing their margins. Think of Shop Clues, think of niche e-tailers and one can see why it may not bode so well for them, given that they on-boarded small offline retailers with bigger sales pitches.
Would it be as simple as it reads?
Great policies are often marred by inefficient execution. Anyone in the creative space would understand how difficult it can be to rally around the core idea and succeed at executing it to what’s agreed on paper. It all reads great and simple but as Satya Poddar, partner, EY said on its implementions especially, the verdict is out: “it would merely be a name changer, rather than the desired game changer”
I tend to defer to that!
(The author is Director – Technology and Servicing, What’s Your Problem)