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GST: State, Central Tax At Source On Online Sellers May Be Capped At 0.5% Each

Bloomberg Quint |

24 May 2017

The central and state governments are expected to impose 0.5 percent tax collected at source (TCS) each on supplies to e-commerce players such as Amazon and Flipkart, a senior finance ministry official told BloombergQuint.

Which means, the total tax e-commerce players will deduct while making payments to suppliers will be 1 percent compared to a 2 percent ceiling under the Integrated GST, the official said requesting anonymity.

The proposed TCS is on the agenda of the GST Council’s next meeting scheduled on May 18-19 at Srinagar, the official cited above said. The provision is not for revenue generation, but to make such e-portals more accountable, the official said.

Tax experts agree the levy wouldn’t add much to the government’s kitty but will improve compliance. All that matters is some reporting by e-commerce players of total value of turnover of a given supplier, said Satya Poddar, tax partner-policy advisory group, EY. TCS will help compare turnover reported by suppliers through their tax returns. If the two values do not match, the supplier will have to reconcile the difference, he said.

Amit Sarkar, head-indirect tax of tax advisory BDO India, however, disagrees. GST itself has enough compliance and TCS unnecessarily adds to the burden.

"It is an extremely retrograde step, very counterproductive to the principle of GST. In my opinion, just this provision not lead to ‘Start-Up India’, but ‘Shut Down’ India in the e-commerce space."

Amit Sarkar, Head-Indirect Tax, BDO India

The decision is expected to increase compliance burden for online retailers. While the TCS rate is being kept low so that less money is stuck in the system, it would still mean that e-commerce companies and vendors will require substantial compliance under the GST regime, Bipin Sapra, indirect tax partner at EY India, told BloombergQuint.

E-commerce players have been against the imposition of a TCS on their transactions saying it will hit the working capital of small sellers.

Amit Agarwal, vice-president and country manager of Amazon India, in an interaction with BloombergQuint in February, had said that the provision in the draft GST law, which mandates that e-commerce marketplaces must collect tax at source from sellers, can put up to 1.8 lakh jobs in the industry at risk.