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Deccan Herald |

26 June 2016

Ecommerce is one sunrise sector, which has tapped this technology and has gained considerable space in the last few years. In India, like the European Union (EU), digital economy is growing at a rapid pace. As per one of the statistics, 53% of over 380 million internet users within the EU area buy products and services online.

The act of purchasing online is comparable to ‘normal’ trade in that the seller offers their products/services on the internet and the customers choose according to their preferences.

Then, by making a selection on the monitor, the customer expresses his wish to purchase the selected products/services. As part of the process, consumers choose a method of payment from those offered like, credit card, cash on delivery, debit card and other comparable methods.

The ecommerce sector has, of late, been facing challenges on the indirect tax front, and an early implementation of GST was expected to provide a boost to the sector by alleviating the current taxation challenges as also lead to ease of doing business for the sector.

The significant developments on the GST front over the last one month’s period indicate that GST could be well poised to see the light of the day from April 2017. One of the important developments was the release of the Model GST Law for public comments.

Multiple tax and compliance

The Model GST Law, specifically with reference to ecommerce operators, proposes a tax collection at source (TCS) mechanism. Under the said mechanism, an ecommerce operator, shall at the time of payment of any amount to a supplier, in respect of supplies of good/services effected through the operator, deduct tax at a notified rate and shall deposit the same with the appropriate government within a period of 10 days from the end of the respective month.

While on the one hand, the supplier would need to discharge the tax liability on the supply, on the other hand, the remittance to be received by him from the ecommerce operator will be subject to TCS.

The proposed tax collection provisions have left the ecommerce players a bit perturbed, and rightly so since the same could have multiple tax and compliance challenges for the ecommerce players.

The first and foremost challenge could be around the fact that since the tax collected has to be deposited with the appropriate government, which would be Central Government for CGST and Integrated Goods and Service Tax (IGST) and respective State Government for SGST, this would effectively mean that any ecommerce player may need to have GST registrations across multiple states of business operations.

The model law for IGST does not have any parallel provisions for TCS by ecommerce players. The point to be noted here, is that whether the ecommerce operator is obliged to deduct TCS even in respect of inter-state supplies of goods/services. The said issue warrants requisite clarification by the government to avoid potential future disputes on this issue.

Similarly, while the tax credit of such TCS would be available to the supplier and accordingly remain tax neutral, there could be timing differences between the tax liability arising on the actual supplies and the TCS, which may lead to working capital issues and reconciliation challenges.

Also, the provisions provide for reconciliation of details reported in the periodical return by the supplier, with the details reported by the ecommerce operator.

This would lead to mismatch challenges and requirement to reconcile and explain the same to the authorities. Any tax liability arising out of such mismatches would need to be paid by the supplier.

On another level, there seems to be some dichotomy in the model law where the terms such as ‘aggregator’, ‘brand name or trade name’ and ‘branded services’ while being specifically defined in the specific chapter for ecommerce sector, have not been referred at all in the section governing the collection of tax at source.

Some dichotomy also seems to be there with regard to other provisions of the Model GST Law, which deem supply of branded services through an aggregator under its brand as a supply of the said services by the aggregator itself.

The Model GST Law does not contain any exclusion for such aggregators for branded services from the tax collection mechanism, which may be double whammy of sorts for the said operators.

Also, the tax collections provisions may have some unintended consequences, wherein even online travel agents may become subject to the tax collection mechanism.

On a comprehensive look, while the underlying reasons for introduction of TCS provisions seem to be broadening of the tax base and ensure that the unorganised sector duly discharges the requisite taxes, the proposal to introduce the same on an all pervasive basis is bound to increase the compliance and administrative complexities for the ecommerce player(s) and would put the very basic idea of ease of doing business in India at stake.

According to Google India, there were 35 million online shoppers in India in 2014 Q1 and is expected to cross 100 million mark by end of year 2016 and by 2020, India is expected to generate $100 billion in online retail revenue(s).

With these statistics, one can imagine the gamut of ecommerce dealings, which could be occurring day in and day out. The digital literacy, that is projected to be inculcated in the rural parts of India through the initiative of ‘Digital India’ will certainly boost the ecommerce to new heights in the coming future. The ecommerce sector could be anticipated to see a paradigm shift from its current position and is bound to grow by leaps and bounds.

Considering the potential challenges and the dichotomy among the provisions, the government ought to come up with clarifications or possible changes in the proposed provisions, which duly considers the business and operational dynamics for the ecommerce sector on a holistic basis and accordingly balances the compliance obligations for the ecommerce players as also serves the well intentioned thoughts to broaden the tax base by tapping any potential leakages.