As the mega tax reform in the form of the 122nd amendment to the Constitution of India is gathering pace the online players suddenly seem to have developed cold feet. While the government machinery is scaling up to achieve the GST implementation deadline of 1st April 2017, the online companies are coming out with excuses and threats to downplay the impact of GST on them. With the Rajya Sabha passing the GST bill, the Lok Sabha was quick to pass it again. The pace at which 15 of the 29 states have ratified the legislation already is a reflection of the government’s seriousness on the indirect tax reform.
It looks that the e-commerce sector was taking it easy during the last two years when the bill was stuck in a political stalemate. The e-commerce sector was basking in the glory of being the sunrise sector and enjoying the sops and limited taxations. They probably ignored the signals that were coming from the authorities that the e-commerce sector will be taxed. Since there was not much clarity on the type of taxes to be imposed on the online transactions, the sector benefitted from the ambiguity. Not wanting to lose revenue, some states like Uttarakhand, Assam, and Bihar imposed a 10 per cent entry tax on goods sold online.
The draft model GST law dealt the first blow when it brought the e-commerce sector under its purview. All the online transactions are to be taxed at the first point of transactions. In the current situation, the online buyer pays a VAT on the goods purchased and the manufacturer of the goods was paying excise duty. However, the mega e-commerce players are not paying any taxes. The GST model law has jolted the e-commerce players out of their slumber.
Recently top notch e-commerce players like Flipkart, Snapdeal, and Amazon have come out with a plea for exemption from the Goods and Services Tax. The excuse given is that they are only a platform provider between the consumer and supplier and are liable to pay GST on the service income. They say that they do not make any money from the sales. When asked how they command such high valuations the reason sighted was the earnings from the advertisements on which they pay service tax.
Google India is unhappy with the SGST part of the Goods and Services Tax. The Google CFO who met the top Indian tax officials has cited difficulties in the state wise segregation for the cloud services. He felt that state wise registrations will lead to compliance issues. The threat is that if the state wise registrations are implemented the International service providers may be forced to reduce the India operations on the GST rollout.
The Google situation is very similar to what the telecom sector will face. For them also, keeping a track of state wise use of service by the end users and then making the SGST payments would be a daunting task. Data services, telecom, and cloud services etc. may have to be taxed differently under GST and it is for the GST council to come out with the right formula.
However, the e-commerce sector should not have much difficulty in paying the GST and then claiming input credit on the supply chain invoices. This way, they would be taxed on the value addition part only. The challenge for the e-commerce sector would be getting the right IT infrastructure in time for the GST rollout. They would also have to go in for multiple SGST registrations right at the onset of GST because the tax on the online transaction is to be deducted at source for the sale of goods and services. Also, depending on the number of states that the goods sold online would have to cross for delivery to the customer would lead to the imposition of IGST. All this information would have to be shared with the customer when he makes the online payment.