It will mean a shift from the current model of taxing inter-state transactions, where the manufacturing state gets the proceeds of a 2% central sales tax on goods sold in other states. This will make way for a system in which the consuming state will get proceeds of taxes on interstate supply of goods. The integrated GST, which applies to inter-state supplies, has central and state components of roughly equal measure.
“We believe GST is good for the e-commerce industry as it would eliminate hurdles in inter-state delivery and subsume the entry tax introduced on e-commerce shipments by some states,” an Amazon India spokesperson said. Flipkart did not immediately respond to a request for comment.
GST, being a ‘destination-based tax on consumption’, is also set to address concerns of state governments that the business models of e-commerce firms erode their tax base.
Getting hassle-free access to markets across the country will benefit the e-commerce sector which, according to a January 2017 report by industry lobby group Associated Chambers of Commerce and Industry of India, is expected to touch $17.52 billion in turnover by the end of 2018.
E-commerce firms achieve efficiency by building warehouses in a few states where merchandise is stored for selling to consumers across the country. These companies typically offer the service of an online marketplace, and in some cases a warehousing facility to vendors, and pay service tax to the central government on any fee or margin received for that. The liability of value-added tax (VAT) to be paid to the state government at the business-to-consumer level is on the vendor.
The Karnataka government had in 2015 asked e-commerce firms to take the responsibility of paying VAT for the sales made by third-party vendors on their platform, leading to litigation between the state and firms such as Amazon.
Experts said that e-commerce firms being asked to provide details of sales by vendors on their platforms was fair, but holding them liable for VAT payment was not.
E-tailers work on thin margins of 3-4%. If they are forced to pay VAT at 14.5% on the product’s value, it won’t work, said an expert who asked not to be named.
“In the GST regime, the vendor has to pay GST and instances of holding e-commerce companies responsible for vendors’ tax payment will come down. In general, GST introduction is good for e-commerce companies as GST is a destination-based tax on consumption, unlike central sales tax on inter-state sale of goods which is origin-based,” said Pratik Jain, leader, indirect tax, PricewaterhouseCoopers India.
Online retailers face one potential irritant in GST—a 1% tax collected at source from vendors and paid to the government. “Vendors will get full tax credit on this 1% tax, but it could cause administrative inconvenience to e-commerce firms when products are returned by the consumer,” said R. Muralidharan, senior director, Deloitte in India.
News Source- Live Mint