Abolition of tax collected at source on e-commerce may be on cards

TCS at the rate of up to 1% is yet to be implemented as it has been deferred till September this year

E-commerce players might finally see the scrapping of the proposed tax collected at source (TCS) under the goods and services tax (GST) regime if proposals for draft policy on this sector are implemented. 

The proposals by a panel say that TCS be revisited, which according to the players mean that the concept be abolished altogether. TCS at the rate of up to one per cent is yet to be implemented as it has been deferred till September this year.  

A spokesman of online marketplace ShopClues says, "Not only for the benefit of e-commerce companies but also for MSMEs and sellers working on a very low margin (say 2-5%). TCS would mean considerable amount getting blocked as working capital."

He says even though the credit of TCS shall be available to merchant, it would impact his liquidity. TCS is there in the GST law because authorities believe that it would help them track those selling their products online.

However, e-commerce players say that they are only the facilitators and should not be burdened with this compliance. Tax experts, however, differ. 

"E-commerce players cannot shun their responsibilities of being a collector taxes for the government," Atul Gupta, senior director Deloitte Haskins & Sells says. 

He says the argument that e-commerce does not produce goods but sell it online could also be given by retailers who can say that they are only selling goods produced by others. 

However, the compliance burden must be eased, Gupta says. In this regard, the panel recommended that there should be centralised registration against multiple registrations required at present under GST in every state they have their warehouses. 

This was also demanded by other service providers such as banking and IT players. While the Centre was all for the central registration, states are against it. 

Once TCS provisions come into force, even a supplier having turnover less than Rs 2 million will need to get a registration for transacting online, the spokesman of Shopclues says. 

For offline players, companies having up to Rs 20 million annual turnover can choose to be out of GST registration.  In a nutshell, such online sellers would always be at a disadvantage compared to their offline peers, the spokesman says.

According to the recommendations, the GST provisions would be modified in order to create a level playing field between online and offline delivery of goods and services for the purpose of GST.

Sandeep Aggarwal, founder & CEO, Droom, says," If we see last 10 years of organized retail, it started moving towards big malls and large format chains and has really made small and medium sellers and merchants with less English knowledge, no deep pockets, less relevant. But with E-commerce marketplaces, almost 15 million small and medium merchants have seen a new birth, a new lifeline, and they no more require English, deep pockets, technical knowledge to sell online."

The recommendations also say that the concept of significant economic presence would be fast tracked to tax Indian offices of foreign companies in the e-commerce segment.

An expert said it is a very significant & a welcome move from the perspective of level playing between non-resident e-commerce players and their domestic counterparts. 

He said with the advancement in information and communication technology in the last few decades, new business models operating remotely through digital medium have emerged. Under these new business models, the non-resident enterprises can carry on business and interact with customers in another country without having any physical presence in that country resulting in avoidance of taxation in the source country.

The recommendations also say that the Online Information Database Access and Retrieval (OIDAR) Services would be reviewed. OIDAR has a significace under GST. For example for import of OIDAR services by unregistered, non-taxable recipients, the supplier located outside India will be responsible for payment of taxes.