NEW DELHI: India’s rapidly expanding ecommerce companies are lobbying the government to keep aggregators that run marketplaces out of the proposed goods and services tax (GST) net.
As the administration tries to persuade the Opposition to reach a consensus over the proposed levy, online retailers are pressing the point that companies running platforms that allow vendors and customers to transact shouldn’t be subject to GST.
By the same logic, they also want these companies — such as Flipkart, Amazon India and Snapdeal — to be viewed as “service providers” to the vendors, liable to pay GST only on service income.
Vendors would be liable to pay GST on the goods sold through their portals, they said in a representation on the matter.
The online retail industry, facing multiple taxation issues, is keen that their core concerns are addressed before GST is rolled out on April 1, as per the government’s schedule.
“The concept of India becoming ‘one country, one tax rate’ for the first time post-Independence is very promising for ecommerce,” said Pramod Jain, head of taxation at Flipkart, which supports the recommendations. “It will widen the choices for consumers as they will enjoy full freedom for the first time to buy from any state or seller.”
The detailed representation to the government is aimed at ensuring a friendly GST regime designed around global practices. A joint working group of both central and state government officials is looking at the GST design architecture for ecommerce.
“Industry expects reduced paperwork, seamless state borders and unambiguous rules under GST to realise its potential,” said Siddharth Mehta, indirect tax partner, KPMG in India. “It is critical that they are recognised as service providers, under the marketplace model, and liable to pay GST only on their service fees.”
As GST will accrue to the state where the consumer is located, the current dispute as to which state is competent to levy value-added tax will hopefully be addressed, Mehta said.
The GST law that’s currently being drafted addresses the matter of geography — where goods are sold and where services are delivered — ET reported on Monday.
State governments have taken an aggressive stance on taxation of the ecommerce sector.
Karnataka has even proposed tax deducted at source on all payments made by ecommerce firms based in the state.
In Uttar Pradesh, taxation practices have led to virtually a complete halt in the delivery of goods costing more than Rs 5,000.
The ecommerce industry wants complete clarity under GST, which seeks to replace all central and state levies on goods and services.
“The term ‘agent’ should be clearly defined to exclude marketplace ecommerce companies who are facilitating sale by vendors to customers through their web portals,” said the representation made by the industry to the government.
“Various services (such as warehousing, cash collection, delivery etc.) provided by ecommerce companies to vendors should be viewed as a composite service for the purpose of ascertaining taxability or place of supply and should not be segregated into individual service components.”
It has sought guidance on the fulfillment model. The need for physical demarcation of goods belonging to various vendors at fulfillment centres should be abolished, it said. Aggregators had been brought under the service tax net in the February budget in the wake of the controversy related to taxihailing app Uber.
“The concept of aggregators should be applied where most of the participants in a trade or business are unregistered for tax purposes — for example, app-based cab booking services or hotel room bookings — who would typically be below the threshold limit for tax registration or where the compliance rate is likely to be very low,” said Jain.
In ecommerce, sellers are already registered with the VAT authorities as they sell through multiple channels and also have to avail input tax credits. Thus, the concept of aggregator cannot work and should not be included, said Jain of Flipkart.
Some experts concurred with this. “The concept of aggregator in service tax leads to fixing the liability on a person who is neither a service provider nor a service recipient,” said Bipin Sapra, partner, EY.
“This is specially flawed where the state levies a tax on the same service, for example the luxury tax in case of hotel industry. No procedures also exist to allow such a concept to be successful in the present law.”
The government has reached out to the Opposition in a bid to get GST-related legislation passed in the Upper House, where the ruling coalition lacks a majority. The levy is aimed at creating a common market and has been described as one of the most significant taxation reforms ever undertaken in India.
ET view: A compelling case to tax e-commerce
There is no case to keep e-commerce deals out of GST. It will do no harm but only help retailers. A tax on online sales is the only way e-retailers can get credit for the taxes they pay on inputs, making it worthwhile for them to do business in India.
It makes no sense to break the input tax credit chain, which is the whole purpose of GST. However, procedures for tax compliance must be hassle-free, even as tax is imposed on all value additions in the chain. This will also prevent tax base erosion and profitshifting by companies.