Compliance & accounting burden
- According to the draft bill, the e-commerce platform will be liable to collect TCS (tax collected at source) on the supplies of goods and services made by the supplier.
- It will be the responsibility of e-commerce firm to file monthly and annual returns.
- Also, the supplies reported by the e-commerce firm will be matched with the details given by the supplier in his return for outward supplies and in case of a mismatch; the output liability of the vendor will be re-determined.
Working capital issues for small sellers
- No threshold limit available to small businesses with annual turnover of less than Rs.10 lakh,
- It expects e-commerce platforms to collect tax on every transaction no matter how small the seller might be.
- This essentially means that a small seller on the platform will invariably end up paying tax and would later apply for a refund.
- This could be a grave issue for small and medium businesses that work on very tight working capital.
- A specific proposal in the draft law relating to tax collection at source will prove to be detrimental to lakhs of small and medium sellers who do business on e-commerce platforms.
Cash on delivery, Returns and Cancelled Order
- E-commerce in India has a return or cancellation rate of about 15-18%.
- Also, more than two-third of the transactions in the country are still on cash on delivery (COD) and the cash reconciliation for e-commerce firms happens about 7-15 days later.
- Deducting tax at source would require e-commerce firms to bear the tax amount from their own capital and later seek refund from the government in case of returns and cancellations.
- Thus TCS can be a major cash flow disadvantage for e-commerce firms especially in the case of cash on delivery or orders being rejected later.
Disadvantage on discounts and freebies
- Most e-commerce firms are known for heavy discounting and subsidizing of products or offering free goods with specific purchases.- now not permitted in terms of FDI Guidelines
- Under GST, freebies are expected to be taxed creating additional burden on the sellers.
- Also, in case an e-commerce firm decides to sell an item on discount it will have to pay the tax on the price it has purchased the goods from the supplier, hence bearing the extra tax burden on its own.
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