Budget 2021: Demand revival, tax clarity key to ecommerce sector growth, say experts

The ecommerce industry has come a long way from being a platform selling predominantly phones and books to becoming a more broad-based marketplace where literally everything is available. Today, the sector is generating multi-billion dollar business every year.

According to management consultancy firm RedSeer, the ecommerce industry is expected to reach $38 billion in sales for the 2020 calendar year, with a year-on-year growth of 40 percent. In CY19, it had registered $27 billion, recording a compounded annual growth rate (CAGR) of 30 percent.

The COVID-19 pandemic also led to a boost in online shopping across the country. However, it was a tough year for the Indian economy as the coronavirus-led lockdown stalled the economy, and in turn, affected the ecommerce sector.

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The ecommerce industry is now eagerly looking forward for some announcements by Finance Minister Nirmala Sitharaman at the Union Budget on February 1.  

The sector is looking for cues and expects there will be measures that will stimulate demand in the economy.

Demand revival

The key task, perhaps, for the Finance Minister, will be demand revival. Here lies the direct connect with the ecommerce industry as the growth of the sector depends on higher volume of purchases, especially in the non-discretionary goods or items.

Ankur Bisen, Senior Vice President, Retail & Consumer Products, Technopak, says, “The key expectation from this year’s Budget will be on-demand revival. There is stress in the real money economy.”

He says, “With 60 percent of our economy coming from domestic consumption, unless there are steps taken to revive demand, the growth of the industry may not be sustainable.”

The festive season in the month of October and November did bring back the sentiment for the ecommerce industry. According to RedSeer, the online festive sale from mid-October till November 2020 clocked $8.3 billion in gross sales, which was up by 65 percent year-on-year.

However, the big question is whether the growth witnessed during the festive season is sustainable.

Mrigank Gutgutia, Director, RedSeer, says, “One clear lesson from the festive season was that ecommerce has become more mainstream than ever. And it has proven that with the right assortment at the right prices, which is delivered quickly in the safety of customer's homes, the value proposition of ecommerce is very powerful.”

“Thus it is imperative for brands and sellers to quickly shift their focus to online and enable a seamless online experience for the customer in order to thrive in a post COVID world,” he says.

Relief to sellers

The festive season actually showed the sellers were the main beneficiaries, and a majority of them come under the small and medium business (SMB) category.

Sourjyendu Medda, Founder, CBO and CFO, DealShare, a social commerce startup, says, “The Budget needs to look at structured taxation reforms like providing startups with a no dividend and no capital tax mechanism. This will enable companies funded by VCs to infuse more working capital into R&D as well as provide companies with more incentives, which in turn will boost growth.”

He also called for certain changes in the regulatory framework like the creation of single window clearance framework for startups and small businesses for aspects like company registration, GST registration, company incorporation, shop establishment, etc.

“This will reduce the compliance cost burden for companies and give them more working capital,” he remarks.

Taxation in ecommerce

The other crucial aspect the ecommerce industry will be looking forward from this year’s Budget will be on the taxation front, especially with regard to Goods and Service Tax (GST). This has created a fair amount of confusion on who should bear the responsibility - whether it is the ecommerce marketplace or the sellers.

The Internet and Mobile Association of India (IAMAI) has sought from the government a reduction in the tax deducted source (TDS) on ecommerce platform to 0.25 percent from one percent to provide the much-needed relief to small sellers.

As of now, the applicability of uniform TDS rate on ecommerce transactions is creating a lot of challenge for small sellers who are conducting their transactions on ecommerce marketplaces.

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According to IAMAI, “Reducing TDS will help achieve the tax trail without creating the unintended cash flow concerns.”

The present regulations has actually created challenges in terms of cash flow and working capital for small sellers on ecommerce platforms. As TDS rules resulted in total revenues being locked up under tax claims, it takes some time even to get the refund back.

Today, for small sellers and SMBs, ecommerce platforms have become a critical avenue for growing their business, especially in the COVID-19 environment where there are restrictions on the movement of people and goods.

This is something that the Union Budget needs to address to kickstart the economy.

Cross-border commerce

Due to the growing online shopping platforms in the country, cross-border ecommerce has been the new disruption in the startup ecosystem. However, certain regulations are proving to be a roadblock for cross-border ecommerce.

Ankur Bisen of Technopak Advisors says, “Cross border ecommerce is a big opportunity, especially for SMBs, as it opens up new markets. But there are a few challenges.”

He cites the example of products shopped on ecommerce platforms from India. In case of exchange or returning the product, it involves a very laborious process where one has set up a warehouse in that country and go through a whole host of regulations.

Industry players are hoping the Budget will focus on this and enable businesses towards growth.

The ecommerce industry is hoping that this year’s Budget will apply the balm to ease the pain of COVID-19 and usher in measures which will bring back growth as well as demand in the economy.

For YourStory's multimedia coverage of Budget 2021, visit YourStory's Budget 2021 page or budget.yourstory.com