Cloud Web-based ERP SaaS Software & GST
At present, the federal indirect tax structure combined with different tax regimes in different states has led to a state of pandemonium and uncertainty on tax imposition on the e-commerce industry. Hence, it has been desired for a long time by the online marketplaces and aggregators that proper laws will help make doing business much easier, remove ambiguity and insulate operators from the arbitrary taxation imposed by different states.
The current Model GST Law has included a separate chapter on e-commerce transactions. However, there are certain challenges in the Model GST as well which may lead to compliance issues, among other things, in the e-commerce sector that is needed to be resolved.
1. E-Commerce Sector: Who All Are Covered?
The chapter which discusses about e-commerce transactions defines a chapter named ‘Electronic commerce operator’ which means ‘a person who owns and operates an e-platform involved in supply of goods or services and other incidental services’. The term ‘aggregator’ is separately defined as – ‘a person who owns and operates an e-platform to enable a customer to connect with different person providing a particular class of service under a common brand name’. However, the term ‘aggregator’ has not been specifically related to the definition of ‘electronic commerce operator’ especially because an aggregator maintains and operates an e-platform for facilitating supply of services. The only difference between an ‘aggregator’ and ‘electronic commerce platform’ is that an ‘aggregator’ provide services under its own brand name unlike electronic commerce platform. As a consequence, an aggregator would be also be required to follow the process of Tax Collection at Source (TCS), among other compliances.
2. Who Are Not Covered?
Different online retailers who sell goods and services on their behalf are not covered under ‘electronic commerce operator’. Hence, the requisite compliances and TCS under this chapter will not be applicable on online retailers.
3. Implications Of The Law On E-Commerce Industry
Electronic Commerce Operators engaged in the supply of goods and services through online platforms/websites are required to collect tax at source and deposit the same with the government. Such TCS or Tax Collection at Source has to be made to the supplier, either in cash or any other mode, at the time of credit of amount payable to the account of the supplier or at the time of payment to the supplier.
Despite the tax exemption being available to small service providers, based on their turnover, it appears that the goods and services tax will still be needed to be collected at source from small suppliers by the e-commerce operators regardless of their turnover. Furthermore, whether reimbursement of the tax paid would be available to the small suppliers is still not clear.
There also appears to be a drafting ambiguity with regard to the definition of the e-commerce platforms and the application of TCS provision. The latter stipulates that tax is to be collected by an e-commerce operator during the time of credit of the amount to the supplier. However, no provisions have been made for particular e-commerce operators who neither receive any payment nor act as a payment pass through such as Quickr and OLX, which are classified advertising platforms. Such platforms merely act as a ‘conduit’ between the supplier and the customer and hence are not expected to comply with the TCS requirement despite the fact that they come under the ambit of an e-commerce operator.
Apart from the greater number of compliances for e-commerce entities, there are significant benefits/advantages as well post the implementation of GST.
Free Movement across India: The implementation of GST could potentially make distribution, sourcing, warehousing of goods easier between different states, just similar to the European Union. Currently, the supply chain system of e-commerce is distorted by different regulations and compliances that prevent these companies delivering the goods on time. Checks at state border check posts in India slow down the movement of goods across the country. Hence, the implementation of GST law will make the distribution process of goods more economically feasible efficient.
Removal of Successive Taxes: The e-commerce industry will benefit significantly from the removal of barriers in cross utilization of credits. At present, the traders are denied credit of service tax paid on input services such as logistics, warehousing, commission of marketplace. Service providers are not allowed to claim credit of VAT paid on goods that are used for providing output services. This results in a significant blocked input tax cost for this sector since VAT is applicable on the output side and most input costs are services.
The GST model will result in facilitation of continuous credit supply across supply chains along with tax set-offs available across the production value chain, both for goods and services. This will eventually result in the reduction of successive effect of taxes bringing down cost of supplies. This cost benefit, hopefully, be passed on to the customers.
Consolidated Tax Rates: At present, there are varied rates of VAT for the same category of goods in different states. This has in the past resulted in disputes pertaining to classification. However, with the introduction of GST, the tax rates at both central and state level are expected to be uniform which would eventually reduce the disputes.
Effective Supply Chain Management: The e-commerce companies will benefit the most once the GST is implemented. Under the present regime of multi-layered supply chain system, there are a lot of compliances, paperwork and reporting to be adhered to. The implementation of GST will remove such complexities. Being a single tax system applicable to both centre and states, there will be transparency and ease in transport of goods especially for the e-commerce companies who sell goods across different states.
Higher Compliance Costs: The Model Goods and Services Tax law casts an obligation on every e-commerce operator to collect TCS and deposit applicable GST when the payments are made out to the supplier. This significantly increases the onus of compliance on the e-commerce operators considering the fact that many of them have a large number of vendors.
Under the current tax regime, the e-commerce companies are required to comply with single central tax legislation. With the enactment of the GST law and the onus of Tax Collection at Source, such e-commerce companies will be also be required to conform to additional compliances in states where the suppliers are located.
Taxing of Stock Transfers: Under the Model GST law, transactions without consideration would be treated as supplies. Intra and inter-state stock (goods) transfers between warehouses of the same e-commerce company would be deemed to be supplies. Although the tax paid would be available as credit to the concerned e-commerce company, there is a possibility that it might result in cash flow blockages.
Valuation on Discounts/Incentives : Under the Model GST Law, the value of goods and services is construed to be the ‘transaction value’. Whether discounts are included in the ‘transaction value’ is totally dependent on the category they fall in. Discounts under the model law have bifurcated into two, namely –
Pre-Supply Discounts – Discounts either before or at the time of supply, a normal trade practice reflected in invoices, will not form a part of the ‘transaction value’.
Post Supply Discounts – Discounts given after the supply of goods are included in the ‘transaction value’ only when such post sale discount is known at or before the time of supply and connected to the relevant invoices.
Under the current VAT regulations, the VAT authorities insist on including the discounts in the assessable value and hence, VAT is charged on the non-discounted price by the e-commerce companies to avoid disputes. However, current definitions do not put into rest such anomaly. Discounts like Cash back offers, promo codes etc come under the ambit of post supply discounts which have to be re-analyzed in the light of these changes.