The roll-out of the goods and services tax seems to have taken a toll on sales of mobile phones by online platforms as they no more enjoy any pricing arbitrage over brick-and-mortar retail stores with the end of differential tax rates (VAT) across states.
The roll-out of the goods and services tax seems to have taken a toll on sales of mobile phones by online platforms as they no more enjoy any pricing arbitrage over brick-and-mortar retail stores with the end of differential tax rates (VAT) across states. A quick check by FE showed that the price of a Samsung J5 Prime 32 GB phone in an offline retail stores currently in Delhi at Rs 12,800 is lower than the price available on Flipkart or Amazon at around Rs 13,490. However, before July the online price was around Rs 12,490. Similarly, an iPhone 6 32 GB is now available in stores for around Rs 27,500 while e-commerce portals are selling it at around Rs 27,900 against a pre-GST price of Rs 26,000.
Shubham Anand, head of retail and consumer packaged goods at RedSeer Consulting, told FE that online firms are expected to witness a fall of 20-25% in their total gross merchandise value (GMV) in July compared with May or June due to a decline in sales of mobile phones on their platforms. According to RedSeer, the total GMV of the e-tail industry in May stood at $16-18 billion. Of this, around 52% came from the sale of mobile phones.
Before July 1, mobile phones sold on e-commerce platforms were generally 5-15% cheaper than those retailed in brick-and-mortar stores. This was because VAT rates varied across states from a low of 5% in Karnataka and Tamil Nadu to a high of 14% in states like Delhi, Uttar Pradesh, Rajasthan and Gujarat. Taking advantage of this variation, online players used to source phones from states having lower VAT like Karnataka and Tamil Nadu and supply to consumers in Delhi and other states where the VAT was higher.
The largest sellers on Amazon India and Flipkart — Cloudtail and WS Retail — have warehouses in states like Karnataka and Tamil Nadu. According to Bipin Sapra, indirect tax partner at EY, the tax arbitrage for e-commerce companies against offline stores has gone away with the implementation of GST. What is still working in favour of online platforms is that certain popular brands like Xiaomi and Motorola sell their brands only through Flipkart and Amazon.