Recently a fresh turmoil has been created in the GST arena with the states pitching in with a fresh requirement. They have sought the right to tax B2B or business to business transactions. They seem to be carried away by the boom in the digital economy and the heavy influx of online start-ups in the country in the recent past. The requirement for taxation also stems from the fact that many states in the US charge sales tax on the online transactions popularly nicknamed “amazon tax.”
With the likes of Flipkart, SnapDeal and Amazon growing exponentially in India, it was imperative that they will come to limelight and catch the eye of the tax authorities. Actually the state laws were framed in India prior to the advent of online retail in India in a big way. Thus the states were unaware about the potential revenue earner at that time. So they have come out with the requirement at the time of the boom.
But the experts feel that the states asking for taxation of online e-commerce transactions would defeat the purpose of the GST. Being a destination based tax; there are rules and framework available for the taxation of goods and services under the GST. However, it is likely to impact the rising e-commerce and e-delivery business in the country. Three important services, namely telecom, logistics and e-commerce are already under the radar where the place of supply rules will be applicable.
GST is consumption based tax and would be applicable at the point of consumption. The e-commerce transactions would involve the sale from a centralized e-portal, which may be located in Delhi while the deliveries may take place in a number of states all over India. The centre favours IGST or the integrated goods and services tax to be levied on the inter-state trade like the B2B transactions. This will keep our tax structure clean and also closely aligned to the international practices. The IGST is proposed to be levied by the centre and distributed to the states in line with their revenue share.
The states have come up with a disrupting request to tax the B2B transactions within the state though the final consumption may be taking place in another state. This request has a major fallacy as it would break the input tax credit chain and lead to dual taxation issues that are already plaguing our businesses. Globally it has been the bone of contention and the centre point of most tax disputes. The place of supply rules is the right method to determine where the service is provided, the type of GST to be paid, and who can claim the credit.
The states have to get over their revenue bickering and look at the larger picture. Services of any kind are likely to be provided across the states and will be taxed on the destination principle. Thus, the taxation of B2B services under the IGST forms the right prospective which the states must embrace.