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Impact of GST on Re-commerce Industry in India

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Re-commerce is an industry wherein used/old goods are procured from individual customers, refurbished/re-conditioned and thereafter sold again (at a lower price) in online as well as the offline second market. As per the current estimate, INR 5000 crore worth of used Mobile phones are being traded in the country and is growing 15-20% every year.

Most companies in this space provide customers an online platform to get Instant selling price of their Old Electronic devices (like Mobile Phones, Laptop etc) and if the customer likes the price, the device is picked up from the customer’s house and the amount is paid instantly. The old devices are then Refurbished/Re-conditioned and sold at a price lower than the price of the new device. This industry is impacting the society in following positive ways:

1- Extending the Life of electronic devices which may have otherwise ended up as Electronic Waste (e-Waste) which is growing to be a major problem for the society.

2- Making smartphones and computing devices affordable for lower strata of the society and bringing them online which has a positive impact on economic growth of the country.

3- Organizing a fragmented industry and creating micro-entrepreneurs who are setting small refurbishing facilities across the country.

The current Tax structure in this industry pans out in the following way:

1- When an individual consumer sells an Old Mobile phone to a Buyer (Refurbisher), there is no tax as the Individual seller is not a registered entity.

2- When the Refurbisher sells the same device back in the market, he pays full VAT (5%). Since there is no VAT credit available to him due to purchase from an individual, he has to bear the cost of full VAT in his margin calculation.

With the introduction of GST, it is believed that the rate of tax is proposed to be around 18%. Since there is no Input Tax credit available to the Refurbisher as the Seller is an Individual non-registered entity, the burden of tax at the time of selling Refurbished device would increase from 5% to 18% thereby drastically reducing the margin and making the business non-viable.

In order to sustain this industry which positively impacts the society in more ways than one, we feel that a lower Tax rate be applied to Used / Refurbished Electronic devices like Smartphones and Laptops (similar to current rate of 5%) under the new GST framework otherwise the Re-commerce industry will be greatly impacted and may not survive.

We believe that the government and the respective authorities would consider the above and help sustain a new burgeoning industry which provides livelihood to thousands of merchants across the country and at the same time address the e-waste problem.

This Article is written by Mandeep Manocha (CEO, Cashify)

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