Easy Guide To GST Implications On E commerce
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The document discusses the implications of India's Goods and Services Tax (GST) on the e-commerce sector, highlighting the transition to a unified tax model and the associated compliance challenges. It outlines the responsibilities of e-commerce operators and aggregators for tax collection at source, the impact on cash flow for smaller firms, and the simplification of tax processes intended to enhance business operations. The GST aims to eliminate cascading taxes and level the playing field between online and offline sellers, but requires all e-commerce entities to register regardless of turnover.
Easy Guide To GST Implications On E commerce
- 1. wwww.digitalerra.com Easy Guide to GST Implications on eCommerce As India stands on the brink of its biggest transformation in the tax reforms- that is the implementation of the Goods and Service Taxes “GST”, we bring you a dedicated study series on ‘GST India.’ Here is the 1st part of the series where we study on the impact of GST on ecommerce in India. We try to understand the effect of transition from the current model of indirect tax to the uniform model given by the GST. GST intends to rationalize the current indirect tax regime, by following its motto of “one nation, one tax”, thereby providing a stable economic environment favourable for growth and development. However, with the unifying tax structure, GST can result in the higher compliance challenges and open up certain other issue which would require further clarity. The model law of the GST defines ecommerce as to mean the supply or receipt of goods and/or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, web services, universal description Discovery and integration (UDDI), File Transfer Protocol (FTP) and Electronic Data Interchange (EDI) whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator. It also suggests that the ecommerce operator would be responsible for the collection of the tax at source hereinafter referred as “TCS” form the seller. The proposal seeks ecommerce operators or the providers of the platform known as the marketplace, to collect the tax from the seller and deposit it to the government at the proposed rate.
- 2. wwww.digitalerra.com Who will be affected? The chapter defines the terms “Electronic commerce operator” and the “Aggregator” differently. The former is defined as to mean a person who owns, operates or manages an electronic platform engaged in facilitating supply of any goods/services or in providing any information or any other incidental services. While the term aggregator is defined so as to mean a person who owns and manages an electronic platform to enable a customer to connect with persons providing a service under the brand name of the aggregator. Although an aggregator is defined separately, it can be assumed that it is covered under the ecommerce operator as the aggregator is also a person who maintains the electronic platform to provide the services. The only difference lies in the fact that the latter sells the service under their brand name. Flipkart, Amazon, Snapdeal lies in the former category while the service providers such as Ola cabs, Oyo rooms etc. fall under the latter group. Consequently, the aggregators too have to adhere to the collection of the tax at source under the model GST law. At the same time, the retailers who offer their own services online are not liable to be covered under the proposed collection of tax at source by the model GST law and the chapter is not applicable on them. Implications of the GST – Tax Collection at source Under GST, online marketplaces will have to deduct 2% tax per transaction while making payments to sellers listed on their portal. This Tax Collected at Source (TCS) will be handed over as collection towards GST to the government. This rule however does not apply to offline retailers. With TCS, capital will be locked away for periods between 20-50 days depending on the transaction date. The significant impact on the cash flow will force smaller firms to seek additional working capital. This will also impact the liquidity and cash flow of these sellers. Apparently, there seems to be a problem with the definition of the ecommerce operator and the application of the TCS provision. For the application of the TCS it is necessary that the transaction amount passes though the ecommerce operator, from which the operator will collect the tax at the time of the credit, but there is no such provision made for the operator who do not receive the transaction amount. In the case of the operators such as the Quiker and the Olx, the operator merely facilitates the meeting of the supplier and the consumer and the payment is directly made to the supplier. Therefore, such operator cannot be expected to be covered under the TCS provision. Furthermore, there is ambiguity regarding the refund of the tax to the small suppliers. Despite the availability of the tax exemption based on their turnover, it seems that while collecting the TCS, it will be collected for the small suppliers too, even when their turnover does not exceed the threshold exemption. There is no provision regarding the refund of their tax. Higher compliance costs
- 3. wwww.digitalerra.com In the current scenario, the ecommerce operators merely act the providers of the platform and have to comply only with the central tax. Under, the GST the tax is based on the place of the service recipient, i.e. the vendors and the ecommerce operators have to register in all the states where they have the vendors in order provide their services and this will burden them with the additional compliance cost. Moreover, the provision of TCS will add significantly to the compliance burden on the ecommerce operators as many of them have large number of vendors. Compliance issue in case of returns and refunds Majority of the products sold online carry a return date of 30 days which translates to about 15 – 20 million transactions per month and the returns and refunds for these have to be done with utmost care. The returns are required to be filed monthly now by both parties and refund adjustment will need special attention affecting tax liability. Removal of Cascading taxes Under the current scenario the traders are denied the credit of the service tax paid on the input services as the warehousing, logistics etc. and the service provider cannot claim the credit of VAT paid on the goods that are used for facilitating the output services. This results in the blocking of the input tax cost for this sector as the VAT is applicable on the output side whereas most of the input cost are services. The modal law of GST will remove the restrictions on the cross utilization of the credit. Ecommerce sector will be benefited from this change under the GST as it will facilitate the seamless credit across supply chains, with tax set offs available across the production value-chain, both for goods and services. This will lower down the cascading effect, bringing down the overall cost of the supplies. Price advantage due to tax arbitrage would disappear: Under the present tax structure, different states impose different VAT rates on the same goods. For example, Haryana has a tax rate of 5% (assume) on mobile phones, whereas Delhi has 13.5% (assume). Online marketplaces list sellers who need to charge lower taxes thus making the product cheaper than local retail prices. The etailers often enter exclusive tie-ups to take advantage from tax arbitrage. Post GST, there will be standard tax rates for each product and tax arbitrage will not be possible, bringing e-tailors and offline sellers to the same level in terms of costing and pricing. No threshold for GST registration Government has specified a threshold limit for all the businesses. A business is liable to register under Goods and Services Tax once such threshold limit is breached. However, such limit is not applicable in case of ecommerce sellers. All the businesses carrying out e-commerce activity are required to get registered under GST irrespective of their turnover.
- 4. wwww.digitalerra.com Ecommerce is a booming industry in India which is expected to cross $100 billion mark by 2020. The unprecedented growth has raised many tax concerns and other challenges related to competition. With implementation of GST, which is due from the 1 July, 2017, it is expected that the simplified structure will help the government to reduce the tax evasion and at the same time promote the interest of the ecommerce sector to grow at the maximum level by allowing the simpler tax structure and the increased ease of doing the business.