Union finance ministry has released a draft Goods and Services Tax (GST) law, and has sought suggestions and comments from stakeholders on it. The bill is expected to be tabled at the forthcoming Monsoon session of Parliament. The draft GST law brings e-commerce platforms under its purview and aims to end confusion regarding defining terms such as services and e-commerce operator. One of the major recommendations in the draft law is taxing the e-commerce transactions at the point of supply. In simpler terms, the tax will be levied as soon as the supplier has received the payment. Also Read - E-commerce rules draft dos and dont’s: No more flash sales on phones, other goods and more
“Every electronic commerce operator shall at the time of credit of any amount to the account of the supplier of goods and/or services or at the time of payment of any amount in cash or by any other mode, whichever is earlier, collect an amount, out of the amount payable or paid to the supplier, representing consideration towards the supply of goods and /or services made through it, calculated at such rate as may be notified in this behalf by the Central/State Government on the recommendation of the Council,” says the draft law. Also Read - Facebook will now make money from WhatsApp's in-app purchases
Simplifying the e-commerce terms Also Read - Flipkart to acquire Rs 1,500 crore worth stake in Aditya Birla Group's Fashion retail
Aggregator: Under the draft law, aggregator is anyone who “owns and manages an electronic platform, and by means of the application and a communication device, enables a potential customer to connect with the persons providing service of a particular kind under the brand name or trade name of the said aggregator.”
While Goods refer to all kinds of movable property, services are those that are supplied by an e-commerce operator under its own brand name or trade whether it has been registered or not.
E-commerce operator: According to the draft law, e-commerce operators are those “who directly or indirectly, owns, operates or manages an electronic platform that is engaged in facilitating the supply of any goods and/or services or in providing any information or any other services incidental to or in connection there with but shall not include persons engaged in supply of such goods and/or services on their own behalf.”
How does the GST relieve the e-commerce industry?
With e-commerce industry shifting to a marketplace model, the companies had to bear with a complex tax system that included VAT, CST, excise and service taxes. But the tax framework haven’t been able to evolve along with the industry, becoming a major hurdle for the e-commerce sector. The existing tax framework also does not categorically define what kind of tax should be applied on the services or goods.
For example, there has been a big confusion whether digital downloads that includes music, e-books, or software, should attract VAT/CST or a service tax. The draft law, however, ends the confusion stating all intangibles will be considered as ‘service’ including software.
Bringing the e-commerce under GST will help combine all indirect taxes and help the industry operate on a single tax model. Right now, the e-commerce companies are also grappling with multiple tax issues in several states. It may be recalled that several states such as Assam, Bihar and Uttarakhand have imposed a 10 percent entry tax on the items sold online. There were also speculations that other states will jump on the bandwagon, which would add more financial burden for e-commerce platforms.
The ‘entry tax’ is a tax that the state government impose on goods (purchased online) shipping from another state — on goods purchased online. The e-commerce companies rued that the entry tax imposed on their courier partners would cause a steep hike in price of goods sold online and ultimately hurt customers.
GST to add burden as well
GST is however not without its issues either, and one of the worries is that managing tax collection at source could be a big headache for big or medium e-commerce platforms, which have to deal with a number of vendors for supply.
“Tax collection at source (TCS) system proposed for e-commerce companies. Any payment made to supplier would be subject to TCS at the notified rate. This may lead to refund situation for many suppliers who operate on thin margin. In addition, the e-commerce companies will need to file a statement providing details of all supplies made through e-commerce platform,” Pratik Jain, Leader – Indirect Tax, PwC India told BGR India.
Another concern is related to the GST threshold, which is Rs 10 lakh and Rs 5 lakh for Northeastern states. Right now the current threshold is Rs 1.5 crore, which means many “more businesses would come under central tax net. Industry was hoping for a higher threshold (of at least Rs 25 lakh),” added the expert.