TDS adds undue compliance burden for e-commerce platforms: IAMAI

New Delhi : The mandate for e-commerce platforms to deduct 1 per cent TDS from sellers will add an undue burden on them, which "worsens the regulatory bias" against online platforms, industry body IAMAI said on Monday. The government, in the Budget, announced a new levy of 1 per cent TDS (tax deducted at source) on e-commerce transactions, which is to be collected from the sellers by the e-commerce companies.

"Deduction of TDS, over and above TCS deduction under GST, is yet another compliance on digital platforms that are not applicable to their offline counterparts, which worsens the regulatory bias against online platforms," the Internet and Mobile Association of India (IAMAI) said in a statement.

Previously, Amazon India and Flipkart had said they were studying the proposal on levy of 1 per cent TDS, and could reach out to the government for clarifications.

IAMAI said the present FDI norms only encourage online marketplaces in the B2C (business-to-consumer) sector that are well recognised as digital intermediaries by law. These platforms only facilitate sellers and buyers to interact, and are not actually engaged in the act of buying or selling goods, it noted.

"Such platforms are neither the payee nor the recipients of the payment, therefore asking them to collect and deposit taxes is akin to imposing liabilities of inventory based model on digital platforms," IAMAI said, adding that such a levy undermines their intermediary roles.

"Furthermore, any form of withholding taxation only creates cash flow irregularities for businesses, and that in turn locks in precious working capital for the small-scale sellers," it said.

E-commerce companies are already collecting 1 per cent TCS (tax collected at source) under GST (goods and services tax) from sellers.

IAMAI pointed out that reconciliation of TCS has proved to be a major challenge under GST, and imposing TDS for direct taxes risks replicating that challenge.

"All such complications raise compliance burden for small sellers and make digital platforms unattractive to conduct business for them. Further, the lack of parity between offline and online sellers could potentially act as an entry barrier for smaller sellers in tier III and IV cities from joining the digital economy," IAMAI said.

The association said it is a dichotomy that on one hand, the government recognises e-commerce as a tool for empowerment and is exploring options to promote onboarding of MSMEs, while on the other hand, imposition like TCS and TDS are making it difficult for such MSMEs to conduct their business via online platforms.

IAMAI said it has, in its submission to the Finance Ministry, also sought clarity on certain areas in this matter.

These include the implication of 'gross amount' or the amount on which TDS is to be deducted, the implication of the term 'deemed payer' as to which agency is actually supposed to deduct the said TDS, clarification on the role and liability of third-party digital payment facilitators, implications for cases involving overseas service providers, among others, it said.

IAMAI has suggested that a consultation be held with the industry on this matter, and said the timeline of April 1, 2020 for the implementation of the provision as mandated is "clearly not feasible for e-commerce services to abide by".

The industry body said the levy would pose a challenge to small businesses, including small scale sellers, onboarding digital platforms as well as new emerging tech start-ups looking to set up operations in India.

"Such impediments do not augur well for the Startup India and Digital India vision that seeks to develop a robust USD 1 trillion digital economy in India by 2025," it said.