GST could be key to unlock issues faced by e-commerce sector
The nascent e-commerce sector in India which took baby steps until about a couple of years ago is in a galloping mode today. The growth of the e-commerce sector in terms of revenue and shipments has been nothing but phenomenal. The e-commerce sector, in a jiffy, has managed to capture the mind-space and eye-balls of the consumers like never before and with an unprecedented growth trajectory expected to continue, is predicted to be the next BIG Industry.
Growth of any business is good news for the economy and especially the taxman. E-commerce sector, with its ever increasing number of transactions in goods & services, is a fertile land for sowing the seed of indirect taxes. While it is fair for the taxman to expect increase in tax revenues through growing businesses, the tax laws should also support the businesses with clarity on taxation matters and ease of doing business. Unfortunately, for the e-commerce sector, the indirect tax laws in India have been more of a snag than a driver for growth.
Firstly, e-commerce sector dealing in trading of goods have experimented with various business models. Starting with the traditional 'stock-and-sell' model, the e commerce companies have transformed into a multi-model platform over time by introducing 'market place' and / or services model, thereby having to grapple with a more complex tax framework involving VAT / CST, excise, and / or service taxes. However, the indirect tax laws have not been able to recognize and accommodate the evolving business models and hence have become an impediment in the operation of the newer market place or services model.
Secondly, the e-commerce sector is having a hard time categorising their offerings into 'goods' or 'services' for charging either value added tax (VAT) / Central Sales Tax (CST) or service tax. This situation aggravates in the case of digital downloads involving software, music, e-books etc. wherein it becomes challenging to assess whether the transaction is for sale of goods attracting VAT / CST or a provision of service that should be charged to service tax. Both VAT and service tax authorities exercise right over such digital transactions leading to disputes and never-ending litigations.
Thirdly, inter-state movement of goods from one state to another is a nightmare for an e-commerce operator. The requirement of statutory forms, way-bills, road-permits etc. and the recently contemplated imposition of local registration requirements for the e-commerce market place entity by certain States under the VAT / CST legislation for entry or sale of goods into the state has made the inter-state transaction an awkward experience for the sector.
Fourthly, the non-fungible VAT and service tax results in significant non-recoup able tax cost impact for the e-commerce sector.
In addition to the above, the tax laws in India have also failed the e-commerce sector by not providing enough clarity / guidelines on taxation and documentation management for typical e-commerce sector transactions like e-wallet (advance deposits by consumers), cash-on-delivery (payment collected at the door-step of the consumer), gift vouchers, drop-shipment (direct delivery of goods from the e-commerce company vendor to the e-commerce company customer) etc. Absence of specific direction on treatment of the above transactions under various tax legislation has led to diverse practice being adopted by the e commerce sector.
E-commerce sector is here to stay and would be one of the pillars of the Indian economy in the near future. Businesses can thrive and grow only in a tax conducive environment and it is obvious that the above issues cannot continue forever and would need resolution sooner than later. While the e-commerce sector is eagerly looking forward to the upcoming budget to address the concerns and act as a business catalyst for the sector, the Goods & Services Tax (GST) which would replace the current indirect tax regime and expected to be implemented in India from 1 April, 2017, could hold the key to unlock the issues faced by the e-commerce sector.