The ecommerce Tax Burden could get bigger with GST law from Cent. Govt.

Clarity on the imposition of GST laws on ecommerce have been much awaited and the central government has finally drafted a national goods and services tax law. The proposed draft will consider all online buying and impose a uniform rate on online purchases, thereby ending uncertainty over tax.

What Does the New Draft Law Clarify?

Imposing GST will clearly determine where the tax is levied, that is, the first point of a financial transaction. All ecommerce operators like marketplaces must deduct GST at the time of payment to suppliers, at a rate the GST Council recommends.

IOS decided to get a sellers perspective on this. So we communicated with AIOVA. The association says, “The proposed draft does not levy any new tax. It has made a new provision, like TDS, wherein a percentage amount will be deducted from our (online seller) payments and will be deposited with the government, on our behalf. Earlier we used to deposit the amount ourselves, now a part of that will be deducted by ecommerce companies. This will not impact selling in anyway.”

Whom does it affect then?

Pratik Jain, leader, indirect tax, PwC India mentions, “This will mean significant compliance burden on ecommerce companies, as many of them deal with thousands of vendors.”

The draft model has a total of 162 clauses and 4 schedules. Any breach of this statute will result in imprisonment for 5 years in addition to a fine.

According to the model law, the ecommerce operator should collect the correct GST amount when making payment to the supplier of goods or services, being sold on the portal. This amount must then be deposited within 10 days from the end of the month when payment was received from the supplier. The collected amount must be deposited with the concerned state government.

For the suppliers, they will experience a refund issue, especially those operating on a thin margin. “Ecommerce companies will need to provide details of all supplies made through the platform,” adds Jain.

“Currently the law has not stated the tax deduction rate. Once it is notified we shall come to know who will be affected. It will affect the sellers who deal in categories with low margin but high turnover, in such categories they may be facing a negative payout, due to which they would have to negotiate with departments to claim refund of vat on the excess amount deducted,” AIOVA explains.

The Government’s Plans

The government wants to include more players under GST taxation. To achieve that it has reduced the threshold for central excise from Rs.1.5 crores to Rs. 10 lakhs.

The model draft will form the basis for the final law after suggestions from experts are incorporated. It will also end the uncertainty on software as software will fall into the services category.

Terms Defined by the Central Government

Terms like ‘electronic commerce’, ‘e-commerce operator’ and ‘aggregator’ are now clearly defined by the government.

Aggregator – person who owns and manages an electronic platform and by means of the application and a communication device, enables a potential customer to connect with those providing a service of a particular kind under the brand name or trade name of the said aggregator.

Electronic commerce operator – every person who, directly or indirectly, owns, operates or manages an electronic platform engaged in facilitating the supply of any good or service.