Why Amazon, Flipkart, others oppose GST collection at source

With tax collection at source (TCS) is poised to come into effect from October 1, e-commerce marketplaces will deduct 2 per cent of transaction value before releasing payment to the seller.

Following the government notification on Thursday, TCS comprising 1 per cent CGST and SGST each has to be collected and paid by 10th of the next month in which it’s collected.

This section 52 of the GST Act that dictates TCS has been opposed by the likes of Flipkart, Amazon, Snapdeal and other e-commerce marketplaces. They say that the upfront collection of the tax would impact the cash flow of merchants selling on their platforms.

Given that sellers work on wafer-thin margin owing to intense competition, the act would add more burden on their operating capital. Handling returns, which hovers in the range of 15 to 20 percent of overall online sales, will further shrink the cash flow of vendors selling on marketplace.

While the government believes that act would weed out non-reporting and under-reporting of transactions, marketplaces lament that they have to furnish monthly statement along with filing regular annual statements. They explain that it would eat up additional time and resources in reporting provisions.

If there’s a mismatch between the information filed by marketplaces and seller, the entire tax burden will have to bear by the seller. This has been one of the major concerns of the sellers.

Flipkart, Amazon and other e-commerce marketplaces fear that compliance burden may prompt sellers to choose offline channels. Till now, sellers on e-commerce platforms are used to file tax liabilities on a quarterly basis.

Besides e-commerce, consumer to consumer transaction platform including Olx, Quikr, Droom and service providers like Uber and Ola would be also impacted by TCS.

While Good and Service Tax (GST) has been welcomed by e-commerce companies, they see TCS against the spirit of making India digital. It negatively impacts the growth of marketplaces at a stage when they require favourable regulations.

The development was reported by Mint.