Online sellers are offering discounts on their products to clear stocks before the new tax regime kicks in, fearing that they may have to sell them at a loss otherwise.
Online sellers are offering discounts on their products in the highest tax bracket of 28 per cent under the proposed Goods and Services Tax (GST), to clear stocks before the new tax regime kicks in, fearing that they may have to sell these goods at a loss otherwise.
Watches, sports and fitness equipment among others will attract 28 per cent GST. Earlier, these goods used to attract a lower VAT, excluding other duties. The MRP of these goods which are in warehouses is based on pre-GST tax rates.
Only a brand or a manufacturer can change the MRP of these products after the GST roll-out, but what will traders do with the old stocks in the face of higher GST rates, ask traders.
“If we recall the inventory from the warehouses of e-marketplaces to get the MRP changed by the brands, we have to bear the recall fee of around Rs 25,000 for 1,000 units to get it sorted and sell it after GST roll-out. If we sell it as is in the new tax system, we’ll be doing so at a loss,” says All India Online Vendors Association (AIOVA), an umbrella body of 2,500 online sellers. While sellers also hold stocks in their own warehouses, they say 60-65 per cent is with e-marketplaces.
“Everyone is trying to clear their stock pre-GST so that they won’t have to incur any additional cost on their stock after GST. Aa few days ago also there was a sale on Flipkart, and everybody is putting out more ads so that stocks can be liquidated,” says an AIOVA spokesperson.
FOUR-TIERED TAX STRUCTURE FIXED
With just a month to go for GST to kick in, there is no clarity on the issue either from the government or from e-commerce platforms, traders say.
A GST Council has fixed a four-tiered tax structure where all goods and services are classified under 5 per cent, 12 per cent, 18 per cent and 28 per cent slots. “There was no VAT on sports and fitness goods in Uttar Pradesh because it is a major sports zone. In other states, it was 5 per cent average VAT. Now, it will be 12-28 per cent,” says AIOVA.
E-Commerce Sellers Association of India (ECSAI) which represents 1,500 sellers says it’s not only the online sellers who are trying to get rid of stocks, but also the offline sellers. “Though there are talks that the government will offer rebates on stock sold during the transition period, it is quite difficult to carry on with the stocks because whatever rebate is going to come up later on will be applicable only till a certain period of time,” said an ECSAI spokesperson.
E-marketplaces can at least waive off the recall fee for a certain amount of time to facilitate changing of prices according to GST rates, sellers say.
“We are studying the GST developments and currently our priority is to enable our systems to be geared up for compliance with GST regulations,” said an Amazon India spokesperson. “As and when details emerge, we incorporate those changes in our system which is very nimble and technologically flexible to incorporate new rules in the system and be totally compliant,” said Shop-Clues vice president (product management) Arun Goel. Flipkart and Snapdeal did not respond to queries. Cleartax CEO and founder Archit Gupta says the problem is true for all kinds of traders across industries where goods are lying with either the trader or the retailer and there is a price change. Trying to clear off the all the stock before the proposed GST roll-out may not be easy either, he adds.
“Sending back stock and taking it through state borders will involve tax implications. If the stock is in transit during the transition, then also there are rules and regulations around it,” he explained. Gupta says the GST Council will have to approve transition rules to clear the air over the many complications.