The Budget’s impact on the E-Commerce ventures is going to be heavy this year owing to the implementation of the Goods and Services Tax (GST).
Finance Minister Pranab Mukherjee has assured that GST will be effective by August 2012.
How is this going to affect the Online Retailing Industry?
Currently, taxes differ as per states & hence E-commerce companies are forced to operate from locations which are considered to be tax-havens. But the cost of infrastructure & logistics goes high & is passed on to the customers. The new tax structure appears to be unified & independent of location. Herein, the taxes will be uniform & based only on the type of goods irrespective from where they are shipped.
Hence, companies can now think of setting up much larger & fewer warehouses in the locations that are logistically the best. Earlier, there were reliant on the hub-and-spook model in which, there are multiple warehouses & from these, the material is then re-distributed either to retailers or consumers. Thus, the inventory costs go up. Now, the companies need to keep a centralized stock & yet the delivery time can be brought down owing the location of warehouse not being dependent on the taxation. . The savings, in turn can be offered to the consumers says Sachin Bansal, co-founder and CEO, Flipkart, “Supply chain will become cost-effective and we can pass on the savings to customers”
This streamlining of the tax structure is one of the many initiatives that the Govt. appears to be taking in order to promote the online companies & their transactions. Over the years we have seen our Govt. taken some steps to earn from the IT industry. This appears to be a first step at letting it grow.
The question now is by when should we see prices actually declining?