GST Council Proposes 5% GST on E-commerce Platforms Across All Transport Modes: Will Amazon, Flipkart & Swiggy Orders Become Costlier?
The GST Council has recommended a uniform 5% GST on e-commerce deliveries in various modes of transport as a step to rationalize the indirect tax regime. The uniform levy would apply to goods transported on e-commerce platforms with goods transport agencies (GTAs) with no input tax credit (ITC). The council also recommends removing a GTA exemption for specified services involving goods ordered through e-commerce sites.
GST on E-commerce Deliveries: Earlier Structure vs Proposed Changes
The proposed changes aim to address the disparity in the indirect tax structure on e-commerce deliveries. Previously, local delivery services provided through e-commerce platforms were subject to 18% GST in specified cases. At the same time, GTA services for transporting goods to registered persons were completely exempt from GST. The GST council recommends a uniform 5% GST levy (without ITC) on local deliveries through e-commerce players and removing the GTA exemption for goods supplied or ordered via e-commerce sites.
Note: The above proposals are by the GST Council. The final indirect tax treatment of e-commerce deliveries would depend on the relevant notifications and provisions.
How will the proposed GST change affect E-commerce companies?
The proposed GST changes might have an impact on the tax liability and cost structure of major e-commerce and quick commerce companies in the country. Some of the major e-commerce and quick commerce companies operating in India include Amazon, Flipkart, Swiggy, Zomato, Blinkit, and Zepto. The companies are involved in millions of deliveries annually through their logistics networks.
Potential reduction in tax liability: The proposed changes would reduce the indirect tax liability on local delivery services, currently charged at 18%. The e-commerce companies would be required to pay only 5% GST on local deliveries, which would be reflected in their expenses.
No input tax credit (ITC): The proposed 5% GST levy on local deliveries without ITC could increase the tax burden on e-commerce companies. It would apply to goods transported on e-commerce platforms with GTA services. In addition, the removal of GTA exemption for goods supplied or ordered through e-commerce sites would also add to the companies’ tax liability.
Adjustment to logistics costs: The e-commerce companies would also have to bear the additional cost of using third-party logistics and transportation services due to higher tax liability.
Simpler tax compliance: The proposed uniform GST of 5% on e-commerce deliveries would reduce the complexity in the indirect tax structure.
Potential Impact on Delivery Charges
The proposed changes to GST on e-commerce deliveries might result in lower delivery charges, with benefits for the consumers. The lower tax rate on local deliveries would reduce the expenses of e-commerce companies, which could be reflected in their prices. However, the removal of GTA exemption and no ITC on local deliveries might negate some of the benefits.
In addition, delivery charges depend on other factors, including fuel prices and distance. E-commerce companies such as Amazon, Flipkart, Swiggy, and Zomato would review their pricing strategy in light of the impending indirect tax changes. They would have to consider the impact of indirect tax changes in their delivery pricing and profitability. However, the proposed changes would only become effective once the official notification is issued.
Also read: GST Council Eases Export Rules for IT Companies: Could TCS, Infosys, Wipro Boost Hiring?
Conclusion
The proposed 5% GST on e-commerce deliveries might affect the operations and expenses of India’s digital commerce and logistics sector in multiple ways. The uniform levy would lower the indirect tax burden on local delivery services in India. However, the removal of GTA exemption and no ITC on local deliveries might offset some of the benefits, which could be passed on to the consumers in the form of higher delivery charges. The final impact of the proposed GST changes on delivery charges would depend on the final notification and pricing strategy of e-commerce companies.