The Central Government, on recommendation of the GST Council (“Council”) has notified the operation of Tax Collected at Source provisions (“TCS Provisions”) on all e-commerce operators, except agents, with effect from October 1, 2018.
Under the GST Regime, on and from October 1, 2018, all e-commerce operators, except agents, shall be liable to deduct tax at source at the rate of 1% i.e. 0.5% CGST + 0.5% SGST, of the net value of intra-State taxable supplies made through it by other suppliers.
Before understanding the ins and outs of the provisions, we should first know who falls under the ambit of the most important bearer of these provisions i.e. “e-commerce operators”
Section 2(45) of the Central Goods and Services Act, 2017 (“Act”) defines “electronic commerce operator)” as any person who owns, operates or manages digital or electronic facility or platform for electronic commerce; Whereas, Section 43 B(d) of the Model GST Law (“Model Laws”)defines an Electronic Commerce i.e. e-commerce to mean “the supply or receipt of goods and/or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, web services, universal description Discovery and integration (UDDI), File Transfer Protocol (FTP) and Electronic Data Interchange (EDI) whether or not the payment is conducted online and whether or not the ultimate delivery of the goods and/or services is done by the operator.”
Thus, despite not explicitly stated in the Act, as per the Model Laws, it can be construedthat a person supplying goods/services on his own account, is not covered under the ambit of e-commerce operators. This implies that e-commerce operators acting as facilitators to actual suppliers of goods are covered under the act, but, the suppliers who sell their own products via their own website shall not be considered as e-commerce operators for the purposes of this provision For instance, Amazon acts a facilitator for various suppliers to sell their goods and hence is an e- commerce operator; whereas, when Samsung sells it electronics through its own website, it shall not construe to be an e-commerce operator.
However, owing to the prevalence of the Act over the Model Laws, all persons who own, operate or manage digital or electronic facility or platform for electronic commerce, shall be considered as “electronic commerce operators”
In furtherance of its drive of increasing compliances, the Government has imposed this provision of tax collection at source on the e-commerce operators. These operators shall now collect a 1% TCS on every transaction executed online and thus, in order to collect this tax,registration in every state where its vendors are located becomes a mandate, irrespective of their turnover. It is important to note that compulsory registration, irrespective of turnover of e-commerce operators is also provided for under section 24(x) of the Central Goods and Services Act, 2017.Act.
Along with the sum so collected, the e-commerce suppliers must file a monthly return by the 10th of the following month containing details of all the sales transaction on which TCS is collected in Form GSTR-8. On the other hand, the vendors/ suppliers must file 3 monthly returns. It is only when these returns are duly filed that the suppliers can claim credit of the tax collected.
Following is a brief table of the forms to be filed by the e-commerce operators and the suppliers:
|For TCS deducted:
Form GSTR-8: By 10th of every month, containing details of outward supplies made through their platform by suppliers in the previous month.
For services provided by the e-commerce provider to the supplier:
For the services provided by the e- commerce provider to the supplier, filing of returns shall be similar to what has been discussed for the Suppliers in the next column.
|Form GSTR-1: By 10th of every month, suppliers have to furnish the details of their outward supplies through E commerce platforms.
Form GSTR-2: By 15th of every month, containing details of tax collected by the E commerce operator, which can be accepted or modified from Form – GSTR 2A which is auto populated from FORM GSTR 8.
By 20th of every month, he shall file return and discharge his tax liability on supply of goods through Electronic Cash or Credit Ledger.
Let us understand the functioning of the new provision with the help of an example:
Suppose, a Mumbai-based vendor A, sells his products through an e-commerce platform say, Flipzon. Flipzon sells a product supplied by A, worth Rs. 1000 to a customer.
Flipzon must firstly be registered in Maharashtra as an e-commerce operator under the GST mechanism. Now, when it executes this sale transaction of Rs. 1,000/-, it must collect 1% of Rs. 1000 i.e. Rs. 10 as TCS.
Both A and Flipzon are now required to file returns as mentioned above.
The sole rationale behind such provision is to ensure inclusion of a wider base under the GST regime. Another reason is the faster collection of taxes. In the present scenario, the tax payable passes through several contours. Whereas, under the upcoming scenario of TCS in GST, the tax will be collected at the source of the transaction itself.
Not only India-based e-commerce operators, but also the foreign operators acting as a platform for sale of products from Indian suppliers/ vendors are liable to get themselves registered under the GST mechanism. For the operators, the imposition of the TCS provision just means more and more compliances and thus, increased costs. Cost will increase on account of an added monthly compliance and more prominently due to the requirement of a sound IT structure which must be able to deduct 1% of tax on every sales transaction that takes place. For a mid- sized operator, to install and maintain such sound infrastructure is a massive cost surge which could hamper is every-day working capital.
By virtue of the applicability of the TCS provisions on the e-commerce operators, the vendors selling their products online, the government has taken another step towards ensuring minimization of tax evasion.
These provisions have come has an added cost in compliance not only for the e-commerce operators, but also the suppliers/ vendors.
Today, with more and more vendors selling their products through e-commerce platforms, imposition of such tax provisions ensures due payment of tax from the vendors. However, considering that the offline vendors are exempt from such provisions, this might also act as a discouragement to the vendors from selling their products through e-commerce platforms; thereby leading to more and more online vendors switching to the offline markets. Hence, from a wider perspective, it comes as a clash between the two of most sought after programmes initiated by the Government i.e. digitization and minimization of tax evasion.
In its drive to curb tax evasion, bringing in more vendors under the GST database, comes as another step towards the goal. The Government shall witness a boost in its revenue.
Another significant yet overlooked aspect of this entire episode is the probable impact on those entities which extend finances to the vendors, for example, NBFCs. It is a very common practice between the Financiers and the Vendors to enter into an arrangement whereby, in return of the finance provided by the former, the revenue accruing to the latter on account of sales shall be directly deposited into an escrow account in favour of the financier. However, it is now uncertain as to how the new provisions will impact such agreements.
Having discussed the impact on the above-mentioned interconnected entities, a question rises that, if at all the benefits that the Government is expecting to accrue from these provisions is commensurate to the bane of the vendors and the e-commerce operators.
(Author can be reached at email@example.com)