Indian online marketplaces are closely monitoring the GST bill as costs may rise up

Indian e-commerce companies such as Flipkart, ShopClues are keeping a close eye on the roll out of the proposed Good and Services Tax (GST) Law as it may end up increasing compliance costs for them.

The GST Bill states that online marketplaces will have to deduct taxes directly on the total sales made by merchants and pay it to the government.

Presently, the companies first deduct their commissions and fees and then pass on the payments made by customers to sellers.

Experts point out this clause may burden the online marketplaces with compliance cost, which may hurt both their and sellers' margins.

"A specific proposal in the draft law relating to tax collection at source will prove to be detrimental to lakhs of small and medium sellers who do business on ecommerce platforms. This clause, which is not applicable to offline sellers, will hurt the working capital requirement for these sellers as they work on small margins to provide affordable rates to consumers," Flipkart told ET.

"We are cautiously optimistic about it, especially in our context as the current draft does not address needs of marketplaces clearly. Unless the government puts a robust digital infrastructure in place, compliance will put undue pressure on small businesses and us. We also really hope that statelevel entry taxes and octroi taxes will be abolished enabling SMEs to service consumers from across their state more efficiently," Radhika Aggarwal, chief business officer at ShopClues, told ET.

Meanwhile, e-commerce firms expect GST to resolve their tax issue with state government such as Uttar Pradesh, Karnataka and Gujarat who are levying new taxes.