The intent of the government is to increase tax base and block tax leakages in the sector.
“Good things come to those who wait.”
After a long wait, India Inc is now able to see how the GST law would broadly look like. Considering the mixed reactions from the industry on the first impressions of the law, it is not sure if the industry believes in the above saying.
Structurally, the model law is the same as postulated earlier—dual structure of Central and State GST governed by separate statutes stipulating tax rates, thresholds, registration, compliance file returns, tax credits, appeals, etc. While each State GST Act would extend to the relevant state, the Central GST Act shall govern India, including Jammu and Kashmir. The government has made its intentions of broadening tax base obvious by keeping a low threshold limit of R10 lakh (and R5 lakh for north-eastern states).
Seeking clarity for quite sometime was one of the fastest growing sectors in the country—e-commerce. Several representations were made by the sector to provide a conducive tax environment for them to operate. Let us understand as to what the law really has in store.
Significant changes have been proposed in the model law specific to the e-commerce industry. In fact, e-commerce has been defined to include modes of online portal, e-mail, messaging, etc, and without any restriction on the person enabling delivery of goods/services. For the first time, a concept of tax collected at source (TCS) has been introduced for the sector, whereby the e-commerce operator shall be liable to collect an amount as tax from the total amount payable to the supplier of goods/services, and deposit the same with tax authorities. The supplier shall then be able to adjust the same against its output tax liability. The suppliers selling goods/services through e-commerce shall be liable to register with authorities irrespective of threshold.
The e-commerce operator shall be required to comply with the requirements of furnishing details of transactions and tax so collected with authorities at stipulated time-lines. Concurrently, the supplier would also be required to file GST returns of supplies made. The data disclosed by both the parties shall then be matched by the authorities and, in case of any discrepancies, adequate action would be taken. In case of mismatch issues, the supplier would be liable to pay differential tax along with interest.
The authorities have also been empowered to extract information from the e-commerce operators in relation to the sales made through them.
In addition, the aggregator levy has been continued, whereby an aggregator shall be liable to pay tax on services sold under its brand name through the electronic portal owned and maintained by such aggregator. Consequently, the aggregator should be required to adhere with registration and return compliance requirements.
In view of the above legal framework, it is pertinent to understand that the same might appear simple, but can also potentially pose significant challenges. There also appear to be multiple aspects which lack clarity.
To begin with, there shall be a significant increase in compliance requirements that would need to be undertaken by aggregators and e-commerce players, and that too at central and state levels. Both may need to be registered in all states of operations and undertake compliance. There is no threshold limit prescribed for registration for e-commerce and aggregators. Further, additional efforts shall be required to reconcile the returns of e-commerce operators and vendors and justify before authorities, as it may become a regular phenomenon due to timing differences, etc. From the perspective of the aggregator, it may be noted that the liability has been fastened on the aggregator, even though the actual consideration may not be received by them. Thus, no relief has been granted on these aspects as sought by the sector in representations made.
There can be challenges of credit accumulation with the suppliers in case the amount prescribed for TCS by e-commerce players is higher than the margin involved. In such scenarios, the same should be granted as refund.
The law proposes GST on branch transfers, with an arm’s length valuation for related-party transactions. For e-commerce transactions, transshipment of goods among states for aggregation, quality check, returns, etc, is a common phenomenon. There is no clarity on the aspect of taxability of such transshipments in law. Ideally, transshipment of goods should be kept outside the purview of GST as no sale is involved, in order to reduce unnecessary tax and compliance burden.
Looking at the above provisions of the model GST law, the intent of the government is to increase tax base and block tax leakages in the sector. However, it shall be imperative that the open issues are adequately addressed, and the challenges envisaged by the sector are resolved. Only then can we have a tax machinery allowing industry to grow and operate smoothly.
The author is tax partner, EY India. Views are personal