Goods and Service Tax was rolled out nationwide on 1st July 2017, marking a revolutionary change in the Indian taxation system to create one unified common market. The GST is a Value added Tax (VAT) proposed to be a comprehensive indirect tax levy on manufacture, sale, and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and state governments. The Government of India is trying to simplify the taxation structure by bringing a change through a comprehensive, destination based single indirect tax. GST was aimed at bringing about much needed standardization in the business landscape.
The Companies in India from Multinational to small or medium scale enterprise are gearing up for the implementation of the GST. The E-commerce division would take action accordingly in its planning by concentrating on provisions particular to this segment in the GST law.
The digital commerce market is estimated to touch Rs. 220,330 crore by December 2017, according to the Digital Commerce report 2016, published by the Internet and Mobile Association of India (IAMAI) and IMRB Kantar. The market has grown at a rate of 30%, between December 2011 and December 2016 to touch Rs. 168,891 crore by the end of December 2016, it added . The explosive growth in the sector has given rise to multiple tax issues along with other challenges such as rising competition, shrinking profit margins etc. They are also facing litigation owing to their innovative business models. E-commerce
Electronic Commerce has been defined in Sec. 2(44) of the CGST Act, 2017 to mean the supply of goods or services or both, including digital products over the digital or electronic network. In other words, Electronic commerce or EC is buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet.
The success of the E-commerce sector is largely dependent on the increasing number of retail entrepreneurs, who fall in the unorganised retail sector category. The government has included such players in the ambit of GST with an intention of broadening the tax base and has introduced specific provisions for the E-commerce companies. Here are some of the key areas of GST that impact the E-commerce sector:
1. Standardization of tax rates—one nation one tax
In the previous regime, there was no uniformity in the chargeability of tax among different states. The tax rates are left with their own state government to decide.
For instance, a cell phone in state 1 is taxed under VAT at five percent and in state 2 at 14.50 percent. Thus, the merchants in state 2 would not have any desire to offer locally but rather would want to offer from state 1, bringing about the loss of income for the state. E-commerce operators have set up distribution centres only in certain locations and collect the VAT applicable on sales made from such centres. In order to compensate for the loss of VAT revenue, many states have recently imposed entry tax on goods coming from other states, which discourages sales made from other states. The entry tax acts as a trade barrier, restricts free movement of goods from one state to another and increases the cost for traders.
Be that as it may, such trade hindrances will stop to exist as GST is comprehensive of entry tax. The destination state gains the income from GST on sales paying little respect to where the sales were made. Further, there is no rate arbitrage under GST on the grounds that the grouping of goods and rate of GST is common across states.
This provides for a disadvantage to the states as they lose autonomy to tax the goods and services.
2. Tax collection at source (TCS)
In terms of Section 43C(1) of the MGL, the E-commerce operator is required to collect (i.e. deduct) an amount out of the consideration paid or payable to the actual supplier of goods or services in respect of supplies of goods and/or services made through such operator. The amount so deducted/collected is called as Tax Collection at Source (TCS). It is mandatory for all E-commerce operators to collect tax at the rate of two percent as TCS on the net value of sales made by suppliers through E-commerce operators. Such TCS has to be deducted in each state and deposited accordingly. This brings in significant compliance challenges to sellers and may discourage sales through marketplace model. However, this may not be applicable to inventory based models, where the E-commerce operator makes the sale from its own inventory. The key purpose of this provision is to encourage compliances under GST and provide a mechanism for the government to track suppliers who sell through E-commerce operators.
3. Increase in compliances for E-commerce operators
The E-commerce operators should report all provisions made by the seller and the TCS gathered thereof on a month to month basis. The sales revealed by the E-commerce operators should coordinate with the deals announced by the provider himself toward the finish of consistently, and any distinction will be added to the turnover of the provider and subsequently be at risk to release GST on such extra turnover.
The E-commerce operator needs to report the product/service code and the relevant rates for everything level independently. This expects them to outline deal done by the merchant and guarantee TCS is deducted in the correct esteem. The execution of consistency is bulky for both web based business administrator and the provider.
Moreover, the E-commerce operators should register in each state and record the reports independently on a month to month premise. This procedure builds the difficulties inconsistence and expenses of maintaining the business .
4. Mandatory registration of sellers and unavailability of composition scheme
GST mandates that all sellers supplying through an E-commerce operator need to be registered under GST irrespective of the threshold limit of Rs 20 lakh. These sellers cannot opt for composition scheme, where they pay a flat tax at the rate of two percent and do not maintain details of each product sold. In this scenario, it is not feasible for small businesses to maintain a detailed record of purchases and sales and pay higher rate of tax. Because of this, many small retailers may not prefer to work with an E-commerce company, which impacts the business for E-commerce operators.
5. Increase in credits
The GST law has extended the meaning of ‘input tax’ to cover any goods/services used by the company in the course of business, which has widened the ambit of input GST credits. This has removed the requirement to establish the direct nexus of inputs/input services with the final product/service provided by companies. For E-commerce operators and sellers, the unavailability of credit towards excise duty and VAT on goods and service tax on certain services adds to the cost of running the business, which would be avoided under GST on account of increase in credits .
Conclusion
The GST initially seems to have a negative impact on the E-commerce sector as it requires lot of compliances formalities to be adhered by the seller. But the Government of India is taking constant steps to promote digitalized economy and E-commerce. The GST has removed the cascading effects of indirect taxes by providing tax credits and has improved competition by reducing transaction cost. The GST with its cumbersome compliances in a way or the other hinders the rapidly advancing sector. Hence there is a necessity to give out some relaxation and ease out the sector.
Statutory framework introduced by the government should be towards the advancement of business rather than creating obstacles. The GST law should provide an enabling environment that encourages E-commerce operators and suppliers
