E-commerce marketplaces will have to deduct 1 percent TCS while making payments to their suppliers. (Source: Bloomberg)

Challenges Loom Over Applicability Of New GST Provision For E-Marketplaces

Reporting norms and information technology system preparedness for managing high-volume transactions are some of the challenges that e-commerce marketplaces will face as the government introduces tax provisions for the sector.

The provisions, which will come into effect from Oct. 1, require e-commerce companies to collect 1 percent tax collectible at source while making payments to suppliers under the Goods and Services Tax regime.

The provisions are expected to improve compliance and will help compare turnover reported by suppliers through their tax returns, thereby checking evasion. Suppliers can claim credit for the tax deducted.

Queries emailed to Amazon India, Flipkart, Snapdeal, and Paytm didn’t elicit a response.

TCS provisions were kept in abeyance till June 30 and later deferred till Sept. 30, 2018. Finance ministry officials met with stakeholders this week to discuss the challenges that the industry is facing to comply with the norms.

Multiple Registrations

One of the challenges discussed at the meeting, according to a person privy to the discussions, is the need for e-commerce operators to obtain registration as a tax collector at source in every state their merchants are located.

“The multiple state-wise registrations required for an ecommerce operator to comply with the TCS provision will increase compliance burden substantially,” said Bipin Sapra, an indirect tax partner at EY India.

The current law requires businesses seeking GST registration in a state to have a physical presence or an office in that state.

Sumit Lunker, an indirect tax partner at PwC India, favoured a tweak to the law. “The government could consider allowing registration without having a place of business in every state, similar to non-resident taxable person provisions.”

The Current Law Also States

  • Merchants selling goods on any e-commerce portal will have to mandatorily register under the GST irrespective of their annual turnover.
  • Businesses are otherwise allowed not to obtain a registration under GST if their annual turnover is up to Rs 20 lakh.
  • Suppliers providing a service on ecommerce platforms are exempt from registering under GST.

Also read: Walmart to Comply With Tax Rule on India Flipkart Deal, CEO Says

Preparedness Of IT Systems

E-commerce marketplaces will need information technology systems to deduct tax on every payment to suppliers, for which they’re not ready, said the person cited earlier. This is bound to create chaos as systems won’t be geared up to take up the high-volume reporting that the sector requires, the person said.

Volume of transactions involved in large e-commerce operators need robust systems that are tested thoroughly before implementation, the person said, adding that even a small glitch will significantly impact the business models of the sellers.

Sapra from EY India agreed. “Since TCS will require a robust IT system both at the operator end and at GSTN end, the government should test the systems before initiating the TCS provisions.”

Ambiguity In Reporting Procedures

The stakeholders also pointed out that the current TCS guidelines don’t prescribe the procedure for adjustments where returns of suppliers exceed their actual sales, the same person said.

The information filed by an e-commerce company would be sent to merchants for acceptance or rejection, and there’s a possibility that the details may be rejected. There may also be cases where TCS is deducted in a month, but the order is cancelled by the customer in the next month. The current procedure doesn’t specify how the differences can be reconciled, the same person said.

There’s still ambiguity on the applicability of TCS in a case where two e-commerce operators are involved in one transaction—such as those involving aggregators.

Foreign e-commerce companies selling in India won’t be required to register under GST or deduct TCS, said the person cited earlier.

The industry has also asked the government to defer the TCS provisions till the end of the festive season citing enhanced sales, said a second person privy to the discussions. The government is insistent on introducing TCS provisions from Oct. 1 and has communicated that e-commerce marketplaces will get more time to file returns.

However, a delay in filing of returns by e-commerce players during the festive season will lead to blockage of capital for sellers as they’ll not be able to claim credit for the tax that will be deducted by e-commerce operators, the second person said.