GST implementation expected to smoothen e-commerce business

The e-commerce market in India is clocking in fast forward growth but there are bugbears and prime among them are complicated tax structure involving VAT, CST, excise and service taxes. After the Union Cabinet approved the Constitutional Amendment Bill on Goods & Services Tax (GST), it could lead to a decision on the rollout of ambitious indirect tax reform. What’s more it’s expected to smoothen the e-commerce business while boosting revenues and growth. The government aims to implement GST by April 1, 2016, the prime focus of Narendra Modi-led government's economic agenda.

Complicated framework worries e-tailers

For now, online retailers are grappling with complex tax structures that are followed by difference states. For instance, the Kerala slapped a fine of up to Rs 54 crores on multiple online players for tax evasion in 2012-13 and 2013-14. The companies that came under scanner included Flipkart, Jabong, Vector E-commerce, which has a stake in Myntra and Robemall Apparels, which operates garments retailer zovi.com. Earlier, a raid was carried out at Flipkart’s warehouse based in Ghaziabad by tax departments of Noida and Ghaziabad and the IT department imposed a penalty of Rs 23.51 crores for operational irregularities.

Even Amazon India announced that it may have to exit Karnataka over VAT issues. The entire issue of VAT and problems surrounding it came to the fore with Amazon's warehouse launch in Hoskote. The dealers showed Amazon warehouse as their additional place of business or branch to avoid paying certain taxes.

Before the G20 Summit, India pushed for new tax regime for global e-commerce firm. Suresh Prabhu, Minister for Railways, who was leading the G20 talks said, the principles need to be chalked out wherein e-commerce is covered. He further added that taxation of e-commerce was a complicated issue as the logistics, production and consumption may take place in different parts of the globe.

State governments are of the opinion that there are ambiguities surrounding the marketplace model adopted by several online retailers. Under this model, e-commerce players offer an online platform that retailers and buyers can use to make transactions; the e-commerce players may also offer logistics and warehousing facilities to the sellers. Amazon in India has only a marketplace model, but the same in Flipkart's case is a small part of its overall operations, because most of the sales are done by the company, through a different entity.

On the other hand, players using the marketplace model say that since they do not directly sell goods, VAT should not be applicable to them. But the state finance department of Karnataka argued that since companies like Amazon offer their platform and services for a commission, even commission agents have to pay tax. Under the existing VAT Act, both dealers and commission agents have to pay tax.

Need for a uniform tax structure

To simplify the life of e-commerce companies dealing with several tax issues, there is a need of uniform tax structure across states. In its current state, the e-commerce sector is facing a dilemma over whether to categorise their offerings under 'goods' or 'services' to come under either value added tax (VAT) / Central Sales Tax (CST) or service tax. Inter-state movement of goods from one state to another is also a huge hurdle since it includes requirement of statutory forms, way-bills and road-permits among many other complicated paperwork along with local registration requirements for the e-commerce marketplaces by some states under the VAT / CST legislations.

Experts point out that, clearly, the tax laws in India are unable to provide enough clarity on taxation and documentation required for routine e-commerce transactions like e-wallet, cash-on-delivery, gift vouchers, drop-shipment and so on. Since there is not enough clarity, the players are following different practices.

Stakeholders are looking forward to the Union Budget to address issues being faced by the segment. They expect the government to stand by them at a time when consumers are showing rising interest in shopping online, which could boost economy as well as revenue generation. They are hoping that GST implementation would replace the current indirect tax regime and show a way forward to the booming market.