Amazon India said a “tax-collection-at-source” provision in the new goods and services regime aimed at online marketplaces would “add a level of complication to the nascent e-commerce sector,” having failed to convince the government to restrict the clause, reports Bloomberg.
The Indian government has so far rejected requests from top e-commerce operators Amazon.com Inc. and Flipkart Ltd. to remove a 1 percent tax deduction at the point of online transaction, stating that it would lock in working capital of vendors and create in inordinate burden on online marketplaces.
“Ecommerce has opened up immense growth opportunities for small and medium businesses by enabling for them easy and convenient access to not only a nationwide consumer base but also to global markets,” an Amazon India spokesman told Bloomberg BNA in an email March 30.
Flipkart’s tax director didn’t respond to Bloomberg BNA’s request for comment March 30.
The e-commerce market in India was estimated at $27.5 billion in 2016, according to a KPMG India analysis, and is expected to grow by 31 percent annually to reach $80 billion by the year 2020. The same report estimates that the retail market within e-commerce was worth $12 billion in 2015, with anywhere between 1 to 1.2 million transactions per day.
The scale of the sector is largely why tax practitioners closely watched whether the government would adhere to the requests made by Amazon India and Flipkart — but the four bills have passed, and there was no indication from the government that the compliance burden caused by the tax-collected-at-source provision would be removed.
“There are probably 10,000 or more sellers who had to manage their own tax compliance prior to GST, and now that compliance burden is on the part of the online marketplaces,” Sandeep Ladda, technology and e-commerce sector leader for PricewaterhouseCoopers India, told Bloomberg BNA March 31.
Ladda said one of the main objectives of GST is to widen the tax net on smaller vendors spread across the country that continue to lack the infrastructure or will to comply with state and federal tax requirements.
“The government has now cast that obligation on online retailers since they will have to deduct 1 percent before transferring payment to the sellers under the TCS provision,” Ladda said.
The 1 percent deduction, however, is expected to cause problems for both the online marketplace and the sellers, according to tax practitioners. The deduction will cause a cash-flow problem for small vendors already working on small profit margins, and online retailers have the new task of tallying sales, tracking where goods are going and accounting for returned items.
“The onus of tax compliance falls squarely on the online marketplaces, where it didn’t exist before,” Ladda said.
Amazon: ‘Good for the E-Commerce Industry.’
Amazon India told Bloomberg BNA in an email March 30 that “GST will be good for the e-commerce industry, as it would eliminate hurdles in inter-state delivery and subsume entry taxes induced on e-commerce shipments by some states.”
When it comes to TCS, it recommended the government restrict the clause only to sharing of information between states and the government so that cross-checks can satisfy the government’s wish for full tax compliance.
“The government will be able to track all transactions under TCS because the point of taxation is at the start,” Santosh Sonar, executive director of indirect tax at BSR & Associates LLP, told Bloomberg BNA March 31.
Sharing information would be a way to track tax evasion without obstructing cash flow, Sonar said, but it wouldn’t satisfy the government’s objective to widen the tax net.
“Not all the smaller vendors will have the bandwidth or infrastructure to properly file their monthly returns, so practically, not all the information would be available,” Sonar said, adding that this is a major concern for the government.
Sonar said under GST online marketplaces and their vendors will have to file returns to the government on a monthly basis, allowing the government to cross reference the reported values of each transaction. Discrepancies will be investigated by tax officers.
The Goods and Services Council will meet again March 31 to negotiate goods and services rate categories and final procedural rules for the collection of taxes at the state and federal level.