What does India’s GST reform mean for e-tailers?

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Author: Becca McDonald, Business Development Executive, eCommerce Worldwide

 

With HSBC reporting that eCommerce in India will create 12 million new jobs over the next 10 years and continued growth on marketplaces like FlipKart and Amazon, the unstoppable rise of India is mirroring that of the eCommerce behemoth China1. Barriers to trade such as slower broadband and lower-than-average smartphone penetration seem unable to stop the rising success of the Indian eCommerce market.

 

Now with the passing of the long-awaited Goods & Services Tax (GST), Indian merchants stand to potentially benefit from the removal of geographical tax barriers, predicting faster growth and a more transparent system to attract new merchants, including a rising number of digital sellers from villages. Significantly, this will create the world’s largest single market.

 

While it won’t come into effect until 1st April 2017, Indian finance minister Arun Jaitley has predicted that it could up add 2 percentage points to India’s economic growth. However, this may cause panic for some business who were unprepared for this development, which will shake up India's $2trn economy and 1.3 billion consumers (around 4 times the US population).2

 

India 2016 Tax Changes

 

To give context to why this unification is so significant, India currently has a complex system of over 15 types of tax including VAT – highlighting the need for a neutral, unified system.3 Naturally this will make the Indian market more attractive to foreign investors and companies looking to set up their digital shops in India.

 

Ashis Goel, CEO of retailer Urban Ladder, asserts that 'as a consumer eCommerce brand, our focus is on building a seamless supply chain...to fulfil customer orders in different parts of the country...overall GST is going to be a game changer for most industries and especially for eCommerce'4. Prior to this, trading across Indian states could be more difficult than trading internationally. Mr Goel said: "shipping his furniture from Poland to Spain could be easier than shipping from Delhi to Calcutta", due to tax restrictions5.

 

While high inflation and uncertainty may linger in the short-term, this ruling may increase the benefit of trading into a unified India, the largest eCommerce market in the Asia-Pacific region.

 

 

1 - BBC News
2 - Reuters
3 - CNBC News
4 - Economic Times News
5 - NDTV Profit News

 

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