E-commerce firms like Flipkart and Snapdeal to deduct TCS under GST
NEW DELHI: E-commerce operators like Flipkart and Snapdeal will have to deduct TCS -1.02 % (tax collected at source) while making payments to their suppliers, according to the new model GST law, which has done away with the definition of ‘aggregator’.
Explaining the changes in the provision, experts said the proposal will increase the compliance burden on e-commerce operators as they will have to deduct 2 per cent TCS and deposit it with the government.
The measure, Nangia & Co Director Rajat Mohan said, will not increase the incidence of taxation on consumers as the supplier will get tax credit for the TCS. The model GST law provides for 1 per cent TCS to be deducted by the E-commerce operators.
According to experts, this would mean that a similar amount will have to be levied on inter-state movement of goods, taking the total TCS deduction to 2 per cent although burden on consumers will not increase.
Mohan further said in case of return of goods by the consumer, the e-commerce companies will not have to deduct TCS as there is no actual sale.
The draft model GST law does not provide any definition of ‘aggregators’, saying that the government would later come out with a notification specifying which type of businesses would be covered under the term.
Aggregators mainly include Ola, Uber and UrbanClap which work as platforms for providing transport and other services. The TCS provision will not apply to aggregators.
E-commerce companies will also have to file returns on the TCS deductions.
The model law has defined ‘electronic commerce’ as supply of goods or services, including digital products, over electronic network.
‘Electronic commerce operator’ would mean those persons who own, operate or manage digital or electronic facility or platform for electronic commerce.
An authority would be created or empowered under GST law to ensure that companies do not pocket gains in lieu of input tax credits or lower rates, according to the draft law circulated to state governments.
“The central government may by law constitute an authority, or entrust an existing authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in price of the said goods and or services supplied by him,” the draft says.
The authority will be empowered to impose penalties. ET had reported on such a provision in its September 19 edition.
The draft law will be taken up for consideration at a meeting of the GST Council scheduled on December 2-3.
The meeting was postponed from November 25 after state governments sought changes to the draft and the council will take it up after officials thrash out those issues.
The provision is drawn from the Malaysian GST framework, rolled out in 2015, that provided for a separate anti-profiteering law to ensure that companies and traders do not get undue benefits from the sudden lowering of the tax rate and make consumers suffer price shocks. Malaysian tax authorities keep a check on sudden spikes in profit reported in quarterly earnings after the GST roll out.
The centre and the states have been keen to ensure that the benefits from seamless input credits and removal of levies under the new indirect tax regime is passed on to consumers.
The GST structure has four rates – 5%, 12%, 18% and 28%. The effective tax incidence will fall when producers get seamless input tax credit and the cascading of taxes is removed. Many consumer durables could see the effective tax decline by a few percentage points.
There has been some apprehension among policymakers about companies absorbing the tax benefits and not passing them on to consumers.
The empowered committee of state finance ministers had raised this issue at a meeting with the industry on GST some time ago. Companies and industries have been known to pocket tax advantages.
“It was seen when VAT was introduced… It is observed when tax cuts are introduced in the official. Companies usually raise prices before the budget and then reduce it marginally if a tax is cut, without passing on the actual benefit to consumers. Some experts are not enthused by the idea.
“While the idea is to protect the consumers, considering the practical challenges on implementation, it might be counterproductive. It could lead to complex paperwork and unwarranted litigation. The experience in Malaysia on a similar provision has also not been encouraging,” said Pratik Jain, a partner with PwC India.
Source: http://economictimes.indiatimes.com
[Editor Note : New The Draft Model GST Law, Draft IGST Law and Draft Compensation Law which would be considered by the GST Council for approval are placed in the public domain for information of trade, industry and other stake holders. on 25.11.2016 :-
Earlier, the Draft Model GST Law was put in public domain in the month of June, 2016 for comments Download: Old Draft Model GST Law -june 2016 ]
Taxable person- Section 10 of New Draft Model GST Law
GST compliance rating- Section 138 of New Draft Model GST Law
Anti-profiteering Measure – Section 163 of New Draft Model GST Law
Schedule V of New Draft Model GST Law -Person Liable to be Registered