The ‘one tax, one market’ principle of the Goods and Services Tax (GST) is in accordance with the ‘one country, one market’ business model of the digital and internet industry in India and the sector has been looking forward to the GST being implemented. The GST is expected to help ease of doing business in India and promote free-play for market dynamics allowing deeper penetration of these services. Indeed, the present Act has certain provisions that are welcome by the digital/internet sector.
For example, the extant tax edicts did not recognise ‘online marketplaces’, leading to such platforms being wrongly identified as wholesalers/retailers and concurrent tax demands being made of them. The Bill gives explicit recognition to ‘e-commerce’ and thereby offers scope for proper representation of the sector.
Another positive development is that the GST subsumes multiple tax claims like VAT, Entry Tax, and LBTs which provides relief for e-commerce. Moreover, clarification on Point of Taxation resolves long standing challenge of inter-state tax conflicts for the sector.
Amendments in ‘Place of Provision’ rules will ensure digital service exports now get suitable due recognition; a repeated ask from the industry that for long had been pending. The GST is a major exercise and it is understandable that such a mammoth task involves lot of fine tuning over time. In that sense, the GST is really a work in progress; and our experience in engaging with the authorities has shown them to be extremely receptive to suggestions and feedbacks from stakeholders.
For example, in the earlier version of GST, internet and telecom sector was wrongly clubbed under telecommunication while some of the definitions of e-commerce agencies were misconstrued. Definition of ‘money’ did not include PPIs while there was some ambiguities regarding Place of supply of provision in case of unregistered person because of lack of clarity on what exactly was meant by “address on record” for such customers. IAMAI raised these issues in the submissions and various meetings with different officials and we are glad to announce that all these concerns were duly addressed in the new draft that came out in November 2016 and subsequent notifications. Similarly, the ‘ask’ for a simplified filing formality for overseas Online Information Database Access and Retrieval (OIDAR) service providers was also entertained favourably by the authorities.
However, there are certain issues that still need to be addressed. For instance, the challenge of multiple registrations is a big challenge for service sector at large; and internet services in particular. Digital services are provided over the virtual space from a centralised location that cannot be demarcated by geographical boundaries. Having to register and subsequently file returns monthly in each state and UT for internet services is an arduous task and will be a major challenge, especially for young start-ups looking to start business in India.
The challenges for e-commerce are of particular concern. GST seems to penalise online selling by imposing unequal burdens on online marketplaces vis-a-vis their offline counterparts. For example, e-commerce has to bear the onerous burden of TCS that will impose rigorous compliance mechanism on all such platform operators. GST also seems to discourage sellers from selling online by withdrawing the minimum income threshold for registration in case of online transactions. E-commerce globally has been proven to be a powerful tool of empowerment for MSMEs and small scale manufacturers, and the same has been replicated in India as well. However, compulsory registration (and thereby periodic return filing compulsions) and TCS deduction will prove to be a major deterrent for sellers below the minimum threshold income level to onboard online marketplaces, especially when they do not have face these complications if they conduct business offline.
The authorities on their part have set up Special Working Groups to look into sector specific challenges and IAMAI has been involved with those concerning the internet and digital sector. These working groups are very receptive to suggestions and a series of notifications and clarifications being issued under the CGST and SGST Acts are proof of the sensitivity of these working groups to genuine concerns.
We are optimistic that going forward the remaining challenges too will be resolved amicably for the best interests of the sector and the nation, and GST in the long run will help realise the vision of a 1 trillion Dollar digital economy that is envisaged by the Government.
BY Amitayu Sengupta, Associate Vice President of the Internet and Mobile Association of India (IAMAI). Views expressed here are personal.