Impact Of GST On B2B Commerce Or Office Supplies
Free Book Preview Tax and Legal Playbook
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
When 32-year-old Vishank Nayyar thought of expanding his edtech start-up from Bangalore to Mumbai and Delhi, the only thing that bothered him was the pain of setting up branch offices in various cities. Sourcing basic office supplies, education supplies and the IT and tech products necessary to run his new facilities seemed like a herculean task due to the lack of professional supply systems, the problem of multiple vendors quoting varying price points, inefficient logistics and multi-location service delivery to those cities.
This was when one of his clients introduced him to a new-age B2B e-commerce platform for office supplies that appeared as a one-window fulfillment destination, consolidating everything required for his venture, which would spare him the hassles of bothering about traditional sourcing methods.
Although there are not many platforms available at present to simplify the business-buying experience, it is the implementation of the GST that is going to help the overall scheme of things for the businesses to take the path of growth and expansion successfully across the country. And how?
GST is the much-needed reformation in the taxation structure and perhaps the most significant financial reform after the economic liberalization of 1991 in the history of India’s economy. In fact, it will be a single comprehensive tax regime, relevant across all states in terms of sale, manufacture and consumption of goods and services, thereby converting the country into a unified market. So basically, if GST manages to see the daylight, it will change the way India does business.
Input Tax Credit Can Be Claimed To Curb Malpractices
As online is a major channel of trade in India today, specific laws have been charted out around e-marketplaces in terms of GST implementation in B2B e-commerce, which even involves the office supplies industry. One of the major benefits businesses will derive is getting tax credits on spends or purchases of "various office supplies & consumables” in order to run their facilities. As far as the buying of office supplies is concerned, till date, taxes on such spends by the businesses for their operational needs were considered as expenses. With GST coming in, buyers can ask the suppliers that charge a certain percentage of taxes while selling their products and services, about the input tax as well as the output tax being charged on their transactions. For instance, under the GST regime, the percentage of tax paid on buying the office supplies can be set-off against the total tax collected for sales/services, which they offer to the purchasers. Till date, the consumption was never treated as inputs credit. Going forward, this would be one of the major advantages buyers would enjoy with the GST coming in to practice.
Standard Tax Rates Might Eliminate Need For Multiple Branches Across States
Today, there are many businesses which have a pan-India presence and are buying office consumables at different tax rates. This impacts their overall spend on operational expenditures.
The destination-based GST implementation will not only subsume the major indirect taxes like the excise duty, service tax, VAT, CST, luxury tax, entry tax, etc., through a unified tax percentage. It will also ensure a smooth flow of input tax credit across the supply chain and across state borders. This will enable businesses to gain a much desired competitive edge and eventually it might also eliminate the need for businesses to open multiple branches across states.
Inter-State Transition Time Gets Reduced And Operational Efficiencies Improve
Currently, B2B e-commerce companies are bound by the tax regulations of different states. Their strategies for sourcing and warehousing are focused on minimizing taxes, rather than on convenience, or other strategic considerations.
Since GST is also replacing the Central State Tax, such e-commerce companies will not have to bother about paying any additional tax when dealing with inter-state transactions or worry about the state they are buying the product from.
The entry tax for goods on inter-state movement from suppliers selling to end-users will become smoother. As a result, instead of maintaining several warehouses in different states, e-commerce companies can do with few and large ones by strategically locating them to cater to several states together.
This would not only streamline the logistics scenario and reduce paperwork, but will also slash the operating costs. Consequently, businesses will be able to price their goods aptly without taking into account the destination of the product, thereby increasing the profit margins.
The Bright Side Awaiting
So, with the new indirect tax structure most likely to remove the boundaries created by state specific tax structures from July 2017, GST is only going to be a boon for both the B2B e-commerce companies and the office supplies industry, allowing them with the potential to grow exponentially.