E-commerce Giants Unite on GST Concerns

As GST rules for online marketplaces took shape, major e-commerce companies raised concerns about compliance burdens like TCS and multi-state registration. This article looks at those concerns and the GST rules for e-commerce.

The article begins by noting that major Indian e-commerce companies, including Amazon, Flipkart, and Snapdeal, have formed a united front. They plan to approach the Federation of Indian Chambers of Commerce and Industry (FICCI) to collectively present their concerns regarding the proposed Goods and Services Tax (GST) proposed GST.

Representatives from these firms previously met with a state finance ministers’ panel in August 2016. During that meeting, they sought an exemption from GST, arguing that their role was merely as “service providers” offering a “platform” to vendors. They highlighted that their primary revenue stream came from advertisements, which are already subject to service tax, rather than direct sales.

Amit Mitra, the West Bengal Finance Minister and panel chairman, requested that the e-commerce representatives submit their demands in writing along with a suggested tax framework they would find agreeable. Mitra underscored that granting a tax exemption to the e-commerce sector could become a “political hot potato” if vendors were taxed on their goods while the intermediary platforms were not.

Other companies such as Paytm, Zomato, and Grofers are anticipated to support Amazon, Flipkart, and Snapdeal in their joint submission to FICCI.

Their upcoming presentation will address the drawbacks of ‘tax collection at source’ (TCS), a point of contention between vendors and e-commerce platforms. The representatives, alongside FICCI members, also intend to meet with officials from the Finance Ministry and the Niti Aayog, hoping to reach a consensus.

GST Model Law and Indian Industry

Further insights into the impact of GST on the e-commerce sector can be found in a detailed analysis detail here. Under the existing model GST law, several provisions have caused apprehension among India’s e-commerce leaders. These include:

• Absence of GST registration threshold: Unlike most other businesses that benefit from a threshold limit, e-commerce sellers are mandated to register under GST GST registration without any such provision. Click here to read more about threshold limits under GST.
• Exclusion from Composition Scheme: The government introduced a composition scheme under GST to ease compliance burdens for small and medium-sized enterprises. This scheme allows businesses to file quarterly returns and pay taxes at reduced rates (up to 2%). However, e-commerce sellers are not eligible for this benefit. To know more about Composition Scheme, Click here.
• Mandatory registration in each state: E-commerce sellers are required to register in every individual state where they supply goods, a requirement that does not apply to other small and medium businesses.
• Tax Collection at Source (TCS): Marketplace operators are obligated to deduct a percentage of the seller’s GST liability and remit it to the government. This mechanism, known as “Tax Collection at Source,” means marketplace sellers must file monthly returns to claim credit for the TCS collected by the operator. This system is expected to negatively affect the liquidity and cash flow of these sellers.

Some experts suggest that a harmonized GST framework could actually benefit the IT industry by preventing states from imposing arbitrary taxes on the e-commerce sector. For instance, states like Uttarakhand, Bihar, and Assam had previously imposed a 10% entry tax on online purchases in May 2016. While discussions continue, businesses should proactively prepare for GST compliance.

Frequently Asked Questions

How does GST apply to e-commerce operators?

E-commerce operators must register under GST, collect Tax Collected at Source (TCS) on the net value of taxable supplies made through their platform, and file returns like GSTR-8.

What is TCS under GST for e-commerce?

TCS is a small percentage that the operator collects from the supplier’s sale proceeds and deposits with the government, which the supplier can then claim as credit in their electronic cash ledger.

Do sellers on marketplaces need GST registration?

Sellers supplying taxable goods through e-commerce operators generally need GST registration regardless of turnover, though some relief exists for specified small suppliers under recent changes.