The growth of the e-commerce industry has been very significant in the past few years. The younger generation has caught on to the idea of online purchases rather than picking up the goods physically from the market. The benefits associated with the online purchase of goods and services like a wide choice, easy refund policy, and home delivery have made it a convenient option. The government realised very soon that it was losing tax revenue on the online transactions. Thus the centre and state governments have tried to come out with their own concept of taxation to tax the e-commerce transactions. The CST, service tax, VAT, entry tax and equalisation tax were all brought in to make the e-commerce taxation complex.
Goods or service? The very issue of categorising the e-commerce commodity as a good or service has been troubling the industry for quite some time. For example, the downloading of software and movies can be considered under both the heads. The variety of marketing techniques like cash on delivery, e-wallet, delivery through courier, and cash-back have made the taxation further complex.
Definition: To tax any commodity, it is essential to define the associated transactions. Many of the states have tried to come out with their hurriedly devised e-commerce transaction definition. The others have levied the entry tax on e-commerce transactions without even defining what it is. The best part is that the states are more concerned with enforcing the compliance on these.
Inter-state dealings: Most of the e-commerce transactions happen across the state borders. While the goods sold locally come under VAT, the ones that are sent across state borders come under CST. In both the cases, the origin state is getting the revenue. The destination state where the good is finally sold was not getting anything. This resulted in the levy of entry tax by the destination state in the garb of protecting the local industry. Some states are levying the entry tax in the range of 5~10% while some have not yet started. The way the things are moving it will not be long before all the states start the entry tax; after all who wants to lose the revenue?
Multiple filings: The sunrise e-commerce industry is under tremendous pressure to comply with the taxation requirements. They are required to file the returns in all the states where they have sold the goods. The pressure of multiple tax filings is telling on the industry. The bane of the problem is that the e-commerce industry is tech savvy with near perfect digital records while the taxation system has failed to evolve with the requirement.
At this juncture, the GST without the 1% inter-state taxation can prove to be a game-changer as far as taxation of the e-commerce transactions is concerned. GST is a destination based tax and with recommendations in place to subsume the variety of taxes like VAT, Octroi, entry tax, and CST, it might become easier for e-commerce companies to comply with the taxation requirements. Also, the taxation methodology will be same across the states making it easier for the e-commerce industry to adhere to the tax norms. Clarity of definition and single filing will make the task simpler.