Online retailers Flipkart, Snapdeal and Amazon today came together to raise concerns about the tax collection at source (TCS) clause under draft model GST law, saying it could result in a capital lock-down for sellers and discourage them from selling online.
This is the first time that the three companies — locked in intense competition for leadership of the booming Indian e-commerce market — have come together to voice their concerns on an industry issue. In the past, they have even taken potshots at one another through social media platforms like Twitter and also offline.
Stressing that GST is one of the most forward-looking tax initiatives, the players exuded confidence that it will have a transformative impact on the sector.
However, the TCS clause would lead to a capital lock-down of about Rs 400 crore per annum and also discourage merchants from selling online.
In addition, it would result in a loss of an estimated 1.8 lakh jobs, putting a halt to the growth and investments in the sector.
Under TCS clause, e-commerce marketplaces will have to deduct a portion of the amount payable to sellers on their platform and remit it to the government. The draft model GST law is due to be finalised at the end of this month.
“We believe we have made a significant difference to the whole ecosystem… There are hundreds and thousands of sellers online and a lot of them are entrepreneurs, some of them are offline retailers… We have come a long way in creating this ecosystem,” Flipkart co-founder Sachin Bansal told reporters here at a FICCI event.
“This is apart from the TCS issue. Our estimate is that at current scale, Rs 400 crore per annum of capital will be locked into the system that will not be accessible to sellers and will eat into the working capital of the sellers and will deter them from coming online and listing with us,” he said.
Amazon India Head Amit Agarwal said, “All of us are investing ahead of scale and a lot of the investment is going into building the right infrastructure and ecosystem, in training/educating sellers and bringing them online and that attracts consumers to come to our marketplaces… This flywheel has been spinning for the last few years… When the ecosystem gets excited, a lot of other industries benefit.”
He added that the TCS would be a “dampener”.
Snapdeal co-founder and CEO Kunal Bahl said “e-commerce is vociferously for GST”.
“To enable the success of these small businesses, we must do. TCS goes completely against that spirit. E-commerce is at an interesting confluence of Digital India, Make in India and Start Up India… The government should seriously look at TCS as this will be serious impediment for our industry,” he said.
Bansal added that an alternate solution could be e-commerce companies sharing data with authorities.
“…Make sure that e-commerce companies share data on a regular basis with authorities and the centre on what tax is due from which seller and that can be acted upon and that information sharing itself will become a deterrent for sellers who avoid paying taxes,” he said, adding Kerala, Delhi and Rajasthan are already doing this.
The companies said the TCS clause is discriminatory towards online sellers and the same does not exist in the offline retail segment. Also, in the online world, it covers those operating under a marketplace model and does not cover those with an inventory model.
The companies contended that the clause, therefore, is detrimental towards e-commerce companies that have brought in billions of dollars of investment.
E-commerce still accounts for 2 per cent of consumption and is poised grow from USD 20 billion to USD 350 billion in 10 years.
By 2021, the Indian e-commerce industry is expected to have 1.3 million online sellers with 70 per cent of them coming from smaller towns, creating 10 million new jobs.