In today’s new economy, knowledge and information have become the main production factor. In this context, innovation and technical progress have a major contribution to the durable economic development. The electronic commerce is the key for enterprises’ competitivity in this informational era, insuring the access to new market segments, increasing the speed of developing business, the increased flexibility of commercial policies, decreasing the provisioning, sale and advertising costs, simplifying the procedures etc. The impact of the electronic commerce upon the companies and upon society will be of great importance both as extent and as intensity. This study aims to establish the ways of making the Internet trade activities more effective and the possibilities by which this kind of activity contributes to the economic development and becomes a growth factor for companies’ competitiveness.
For instance, Amazon, Snapdeal and Flipkart are e-commerce Operators. The orders are booked on such platforms and these platforms receive the payment. Such orders in turn may be supplied by different suppliers and payment to them is made by e-commerce operator.
There are different business models under e-commerce popularly called Market place model or Fulfillment Model or Inventory model.
Goods and Services Tax (GST) as a tax reform
Migrating to Goods and Services Tax (GST) is a time to revinict the taxation and remove the anomalies. A recent report released that the e-commerce market will account for 2.5 per cent of the India’s GDP by 2030, growing 15 times and reaching USD 300 billion.
Goods and Service Tax (GST) is a destination based consumption tax which is a levy of tax on all goods and services with the objective of expanding the tax base through wide coverage of economic activities , mitigating the cascading effect , reduction of exemptions, enable better compliances etc. thereby resulting into formation of common national market for goods and services .
Present Tax Scenario
Presently, e-commerce companies face five indirect taxes including service tax, central sales tax (CST), value-added tax (VAT) and customs duty. At present the centre taxes the sale of services and states tax the sales of goods. Therefore service tax, CST and customs duty have to be paid to the centre while VAT has to be remitted to the state governments. After the implementation of GST, it will become simple. Sellers on e-commerce will have to pay tax in the state where the delivery happens. In the long-run the creation of a unified market place may reduce the tax burden, inventory cost and logistical issues, and ensure seamless movement of goods across the country. Many producers, sellers and consumers will have easy access to an all-India market as there will be development of seamless national supply chain.
In case of e-commerce operators, no tax liability has been imposed upon them in respect of supplies made by actual suppliers through them except for the liability to discharge tax on the services rendered in relation to such supplies. Their obligation is restricted to provide information to the government regarding the details of supplies made by the actual suppliers and to deduct and deposit a percentage of taxes from the collection payable to the suppliers.
There are no provisions relating to levy of indirect taxes (Central Excise or Service Tax) collection of tax at source under the current tax regime.
In GST Regime
The e-commerce entities may have to revamp the current business models, as the VAT rate arbitrage available in the current law may not be available in GST. However, the challenges currently faced by the e-commerce companies in undertaking inter – state transfer of goods owing to trade barriers shall ease out under the GST regime. GST is proposed to introduce a Tax Collection at Source (TCS) provision for e-commerce operators with respect to goods sold or services supplied through their portal which shall significantly increase the compliance burden on the industry.
Section 2(44) of the CGST Act, 2017 defines an Electronic Commerce to mean the supply of goods and/ or services, including digital products over digital or electronic network.
Thus, the scope of e-commerce is as follows:
- Supply of goods and/ or services
- Such supply or transmissions shall be over digital or an electronic network (primarily internet)
- Section 2(45) of the CGST Act , 2017 defines an Electronic Commerce Operator (Operator) as every person who, owns, operates or manages digital or electronic facility or platform for electric commerce.
Transactions carried out by an e-commerce operator
Following transactions / events take place generally, when a transactions carried out by an e-commerce operators:
- Various products and services available with e-commerce operator are displayed on his electronic platform.
- Customer visits the e-commerce platform with his requirement.
- Customer chooses the product and price and terms of e-commerce operator
- Customer chooses the various vendors registered with e-commerce for supply to customer.
- Customer pays to e-commerce operator by one of the payment options
- E-commerce operator informs the respective vendor of the order
- The vendor concerned supplies to customer and informs to e-commerce operator
- E-commerce operator settles the vendors payment periodically.
Section 24 of the CGST Act, 2017 provides that the threshold exemption is not available to e-commerce operators and they would be liable to be registered irrespective of the value of supply made by them.
In following cases, registration under GST shall be mandatory irrespective of threshold exemption –
(i) person supplying goods and / or services through e-commerce operator;
(ii) every electronic commerce operator;
Tax Collection at Source (TCS) provisions to be applicable:
- Section 52 of the CGST Act , 2017 provides that the e-commerce operator not being an agent is required to collect (i.e. deduct) an amount at the rate of one percent from the net value of taxable supplies made through it where the consideration with respect to such supplies of goods and / or services is to be collected by the operator. The amount so deducted/collected is called as Tax Collection at Source (TCS).
- ‘Net value of taxable supplies’ shall mean the aggregate value of taxable supplies of goods or services other than the services on which tax shall be paid by the e-commerce operator made during any month by all registered taxable persons through the operator reduced by the aggregate value of taxable supplies returned to the suppliers during the said month.
- E-commerce operators will have to collect tax at source (TCS) in addition to what GST is payable in the states in respect of supply of their own goods and services. This tax will have to be collected on payment to vendors which will be subject to reconciliation at a later stage.
- Section 52(3) of the CGST Act, 2017 provides that the amount collected by the operator is to be paid to the credit of appropriate Government within 10 days after the end of the month in which amount was so collected.
- Further, Section 52(4) of the CGST Act, 2017, provides that the operator is required to file a Statement, electronically, containing details of all amounts collected by him for the outward supplies including the supplies of returned goods or services or both made through his Portal, within 10 days of the end of the calendar month to which such statement pertains.
- The said statement would contain the following information :
- names of the actual supplier(s),
- details of respective supplies made by them and
- the amount collected on their behalf.
The Form and Manner of the said Statement has been prescribed in the GST Rules.
Actual suppliers can claim credit of the TCS:
Such TCS which is deposited by the operator into Government account will be reflected in the cash ledger of the actual registered supplier (on whose account such collection has been made) on the basis of the statement filed by the operator. The same can be used at the time of discharge of tax liability in respect of the supplies by the actual supplier.
E-Commerce operator required to furnish information to the Government:
- Section 52(12) of CGST Act , 2017, provides that an officer not below the rank of Deputy Commissioner by serving a notice either before or during the course of proceedings , may require the operator to furnish details relating to:
(i) supplies of goods / services effected through the operator during any period;
(ii) stock of goods held by actual supplier making supplies through such operator in the godowns or warehouses belonging to the operator and registered as additional place of business by the actual supplier.
- The operator is required to furnish the above information within 15 working days from the date of service of notice asking such information.
- In case of failure to furnish such information, the penalty could be extended to 25,000/- .
Matching Concept in E-Commerce provisions:
- The details of supplies and the amount collected during a calendar month, and furnished by every operator in his statement will be matched with the corresponding details of outward supplies furnished by the concerned supplier in his valid return filed for the same calendar month or any preceding calendar month.
- If the above do not match , discrepancy shall be communicated to both the persons i.e., operator and the concerned supplier
- If supplier does not rectify in his valid return for the month in which discrepancy is communicated, then that would be added to his output liability for the month succeeding the month in which discrepancy is communicated.
- Such supplier would be liable to pay tax along with interest at the rate specified under section 50 on the amount so added from the date such tax was due till the date of its payment.
Likely Impact in GST regime:
Based on the provisions of CGST Act, 2017, e-commerce companies shall be impacted, both positively and negatively under the GST regime.
- The e-commerce companies may have to revamp the current models, as the VAT rate arbitrage available in the current law may not be available in GST. Tax Collection at Source (TCS) provisions have been introduced on e-commerce operators in the GST Act. However, there are no provisions relating to collection of tax at source under the current tax regime.
- The procedure for all the invoices / receipts towards inward and outward supplies will become cumbersome as each one of them will have to be uploaded in the system.
- The frequency and number of returns to be filed will go up.
- Mandatory registration to be taken by the e-commerce operators irrespective of the threshold limit
- Compliances will increase.
- Will enhance transparency in transactions
- Overall cost may increase for the ultimate consumer
- Presently, e-commerce companies face five indirect taxes including service tax, central sales tax (CST), value-added tax (VAT) and customs duty. At present the centre taxes the sale of services and states tax the sales of goods. Therefore service tax, CST and customs duty have to be paid to the centre while VAT has to be remitted to the state Governments. With the GST implementation, it will become simple. Sellers on e-commerce will have to pay tax in the state where the delivery happens.
- In the long-run the creation of a unified market place may reduce the tax burden, inventory cost and logistical issues, and ensure seamless movement of goods across the country.
- Many producers, sellers and consumers will have easy access to an all-India market as there will be development of seamless national supply chain.
Major challenges in GST:
GST poses multifarious challenges to e-commerce sector. Some of them are as follows:
Under CGST Act , 2017 , once the goods are being supplied, suppliers need to charge the GST on the bill and the same need to be paid to the Government. But if the goods are being returned back from the customer, whether the assessee can claim the credit of the same or can apply for refund. Certainly, there is no provision enumerated in the Act in this regard. As per section 54 of the CGST Act , 2017, refund can be apply only when there is unutilized credit on account of exports or when there is credit accumulation on account of rate of tax on inputs being higher than the rate of tax on outputs. Taking into fact that around 30% of the products are being returned in online retails, it’s going to hit the sector very hard.
Books of account
As per section 35 of the CGST Act,2017, every registered person shall maintain books of account at his principal place of business and where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business concerned. Section 2 (85) of the CGST Act, 2017 defines “place of business” to includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services. Since various Ecommerce operators provide the facility of storing i.e. warehouse, godowns in the number of states, they have to maintain the record in each such place thereby increasing the compliance burden. Thus, the concept of centralized accounting is done away with GST which ultimately increases the compliance burden and the cost.
Matching of Invoices
The matching concept in GST may create a problem as huge number of invoices have to be uploaded in the software. The details of supplies and the amount collected during a calendar month and furnished by every operator in his statement should be matched with the corresponding details of outward supplies furnished by the concerned supplier in his valid return filed for the same calendar month or any preceding calendar month. If the above do not match within a reasonable time, then the supplier would be liable to pay tax along with interest at the rate pecified under section 50 on the amount so added from the date such tax was due till the date of its payment.
The Vendors Offer a lot of discounts post invoicing which may not be known at the time of invoice and may be innovative and different from trade norms. As per the CGST Act , 2017, these discounts may not be allowed as deduction from transaction value on which GST would be calculated as section 15 of the CGST Act , 2017 allows only such post-supply discount which is established as per the agreement and is known at or before the time of supply and specifically linked to relevant invoices. Moreover, there is a concept of sizable discount in the e-commerce sector which are offered by the vendors on e-commerce sites by borne by the e-commerce operators. For example, a product worth 1000 are sold by the vendor at a discounted price of 800. While the consumer ends up paying 800 but the differential amount of 200 are paid by ecommerce operator to the vendors. In e-commerce trade parlance, it is known as “burning cash for promotion”. Thus it is loss to the e-commerce in the form of discount on which tax authorities may end up demanding tax on it keeping in mind the provision enumerated in section 15(3).
In present regime, stock transfers are not liable to CST and entry tax, if applicable except the VAT credit retention. However, under GST regime if there is interstate stock transfer, it would be leviable to IGST. Although credit of IGST can be claim but it would unnecessarily block the working capital ultimately increasing the financial burden.
What e-commerce companies should immediately do?
- Review of existing business models
- Review of supply chain management
- Vendor training modules to ensure compliances and harmony with e-com’s procedures / documentations
- Standardization of documents, invoices etc.
- Vendor contracts / documentation
- Review / change of ERP / operational software
- Accounting changes
- Impact analysis
- Supply chain / logistics analysis
- Staff training
GST is surely going to be a game changer for e-commerce businesses as there are no provisions relating to collection of tax at source under the current tax regime. In order to mitigate the challenges being posed by e-commerce transactions, the Act endeavors to establish a compliance mechanism to ensure that the appropriate taxes are discharged by the actual suppliers supplying goods or services through electronic portals.