While traditional retailers call for a level playing field, industry experts caution that such a move could raise costs, hinder innovation and dampen consumer demand
Following the national governing council meeting of the Confederation of All India Traders (CAIT), which called for a 28 per cent Goods and Services Tax (GST) on quick commerce and ecommerce deliveries, stating that such convenience should be treated as a luxury and taxed accordingly, the industry experts have warned that such a move could severely disrupt the digital retail ecosystem.
Highlighting that such a proposal could threaten the affordability and convenience that define quick commerce, the leaders have emphasised that it could hamper innovation in last-mile delivery by straining already tight margins, and risk pushing cost-conscious consumers back to offline channels. While raising questions around the long-term implications on India’s digital retail roadmap, industry players also raise concerns over the viability of smaller sellers and direct-to-consumer (D2C) brands.
What Has Cait Proposed?
Accusing ecommerce and quick commerce companies of continuously violating rules and laws, conspiring to destroy the businesses of small traders, the national governing council meeting of the Confederation of All India Traders (Cait) has demanded that a 28 per cent GST should be levied on quick commerce and ecommerce companies, stating that such convenience should be treated as a luxury and taxed accordingly.
Criticising the aggressive algorithm-driven consumer manipulation and the use of foreign direct investment (FDI) for predatory pricing, Praveen Khandelwal, Secretary General of Cait, questioned the need for 10-minute deliveries when local shops are available on every street corner.
“Instead of creating infrastructure or supporting the retail economy, FDI is being used to finance losses, destroy small shops and capture control over the supply chain. It is not trade anymore—it is a race for valuations and the casualties are India’s small retailers,” Khandelwal stated during the National Conclave on ‘Cruel Face of Quick Commerce and Ecommerce’.
Viability Of 28 Per Cent GST Proposal
While the proposal may look revolutionary from the offline retail perspective, but the industry experts have believe that imposing a blanket 28 per cent GST on ecommerce and quick commerce could severely strain the growth of the sector by inflating costs, reducing margins and slowing consumer demand, particularly in the segments which are price sensitive such as groceries.
“A 28 per cent GST will significantly impact the growth trajectory of quick commerce players. The model thrives on affordability and convenience, both of which take a hit when prices rise. With already razor-thin margins, platforms cannot absorb the tax without bleeding money, yet passing it on to consumers risks a drop in order volume,” highlighted Siva Balakrishnan, Chief Executive Officer (CEO) and Founder at Vserve.
Warning that the entire online business volume will collapse if such a tax structure is applied to the entire cart value of ecommerce and quick commerce shipments, the experts stated that It will not be viable to buy products if they are 10 per cent more expensive online, assuming most items have an 18 per cent GST rate.
“A 28 per cent GST on the entire invoice value of ecommerce shipments is not viable. GST is charged based on the HSN (Harmonised System of Nomenclature) code of the product. The GST rate cannot change for the same product depending on the business or entity purchased from. At best, a 28 per cent GST can be charged on the convenience fees and shipping charges. This will not change things much as these amounts are insignificant on the total cart value,” explained Alok Chawla, Founder, Kiko Live.
Impact On Last Mile Delivery
A higher GST could stifle innovation in last-mile delivery by increasing costs, pushing companies to prioritise survival over experimentation. Experts warned that such a move could limit innovation to only well-funded players and discourage new entrants, resulting in less accessibility of advanced delivery solutions. However, the industry players noted that the need for better logistics is not going away.
“Innovation does not stop because of tax changes—it just gets more focused. Yes, a higher GST could tighten margins for delivery partners, but the demand for better logistics is not going anywhere. It pushes everyone to think leaner and smarter. Whether it is warehouse optimisation or WhatsApp-powered checkouts or better return management, innovation will continue,” highlighted Chirag Taneja, Founder, Gokwik.
A Shift Towards Offline Retail
The main notion behind such a proposal aims to aid the traditional retailers who have been impacted due to the rise of ecommerce and the quick commerce ecosystem. However, the experts believe that such a move can push price-conscious consumers back to offline stores, especially for low-margin essentials. However, the experts echoed the sentiment that while price hikes might nudge a few to reconsider offline options, the aspects of convenience, experience and personalisation win in the long run.
“Post-pandemic, 68 per cent of urban consumers prioritise convenience, but a 10 to 12 per cent price hike on essentials (such as Rs 200 orders becoming Rs 224) could push 30 to 40 per cent of price-sensitive buyers to kiranas. While 70 per cent of metro retailers use rented shops, higher GST could push price-conscious consumers back to offline stores, especially for low-margin essentials,” stated Mukul Goyal, Co-founder of Stratefix Consulting.
Margin Pressures For Small, D2C Brands
With a large percentage of their business coming from online sales, D2C brands and small sellers are expected to be the most impacted if such a proposal transforms into a reality. While the agile brands could adapt through bundled offers or cost optimisation, the industry experts warned that the micro, small and medium enterprises (MSMEs) could suffer due to rise in compliance costs and increased margins pressures.
“For over seven million MSMEs on Amazon, Flipkart, compliance costs (for example GSTN filings) could rise by 15 to 20 per cent. However, organised taxation might curb cash-based competition. D2C brands, constituting 30 per cent of quick commerce SKUs, face margin pressures as platforms pass GST costs to sellers. Small sellers, already navigating one per cent TCS (tax collected at source) compliance, may struggle with liquidity,” Goyal explained.
Status Of Current Tax Structure
There are numerous taxation provisions affecting ecommerce transactions in GST. As per Section 52 of the CGST (Central Goods and Service Tax) Act, every electronic commerce operator, not being an agent, shall collect an amount calculated at a rate not exceeding one per cent (0.5 per cent Central GST and 0.5 per cent State GST; In case of inter-state transactions, one per cent under Integrated GST Act), of the net value of taxable supplies, as highlighted by The Institute of Cost Accountants of India.
In India, while GST on delivery and convenience fees is typically 18 per cent, the rates differ based on the type of goods or services. The tax is structured across five primary slabs- zero per cent, five per cent, 12 per cent, 18 per cent and 28 per cent. While basic necessities are taxed at the lower rates, luxury items and sin goods are placed in the highest 28 per cent bracket.
Triggering concern across the digital retail ecosystem, the proposal aims to ensure a level playing field for traditional retailers, while the experts stress that blanket taxation risks undermining digital commerce growth, especially for price-sensitive consumers and small sellers. Looking ahead, a more balanced policy becomes crucial to ensure that while the online ecosystem thrives, it does not eat into the brick-and-mortar retail.
