69% of eCommerce sellers believe that the 1% tax collection at source will negatively impact their business

13th November 2018, New Delhi

The Central Board of Indirect Taxes in late September notified that with effect from 1st October 2018, a 1% Tax Collected at Source will be applicable on all eCommerce sellers, under the Goods and Services Tax (GST). The decision sparked concerns amongst the ecommerce sellers, especially the small ones and many of them raised the issue in various circles.

The new law requires eCommerce platforms to collect 1% tax at source for all sales before paying them and deposit the same by the 10th of the following month. eCommerce platforms that don’t deposit it timely face 18% interest liability on the tax amount. Media reports suggest that many eCommerce platforms have missed the first Nov 10 deadline in various states due to states not allowing registration basis their headquarter address.

LocalCircles conducted a survey amongst startups, SMEs and ecommerce sellers to understand the impact of this decision as it’s now over 40 days post the new law went into effect. 15000+ votes were polled on this 4-poll survey and over 7,000+ unique respondents participated in the exercise.

69% of the startups, MSME and sellers on ecommerce sites said that this decision will have a negative impact on their business. Only 20% said the impact will be positive while 11% thought it will not have any impact.

69% of eCommerce sellers believe that the 1% tax collection at source will negatively impact their business

45% sellers on ecommerce sites believe that the 1% Tax Collection at Source decision by the government will put them at a disadvantage vis-à-vis offline sellers, as the GST for offline sales is supposed to be deposited only on the 20th of the following month.

45% of eCommerce sellers believe tax collection at source puts them at a disadvantage vis-a-vis offline sellers

In the interesting case of the merchandise being returned by the consumer, ecommerce sellers were asked how they see the Tax Collection at Source working. 37% said the returns will get more disciplined and streamlined while 23% said it will tie up additional working capital. 40% said they can’t say anything right now as they were yet to see the impact of returns in the context of TCS.

23% of eCommerce sellers believe that tax collection at source for merchandise returned by consumers will tie up additional working capital

A large 61% of the ecommerce sellers also believed that tax collection at source for online sellers will lead to volumes moving from micro to SME and large sellers. 14% said this will not happen and 25% were unsure.

61% of eCommerce sellers believe tax collection at source for online sellers will lead to volumes moving from micro to SME and large sellers

It appears that the smaller online sellers are quite concerned that 1% of their working capital will now get tied up and they do not have the where with all to file documents, track refunds and some have cited the example of GST refund issues that exporters faced in the last 15 months. Many also say that the untested IT infrastructure is also causing unnecessary disruption for them. Many of the smaller online sellers are 1-5 staff set ups with the entrepreneur themselves handling tax issues with an outside accountant.

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