Sector-specific provisions needed in GST regime to create clarity in tax treatment of online marketplace transactions: IAMAI-PwC Report

Mumbai, May 12, 2016: With the Goods and Services Tax (GST) potentially around the corner, PwC India and Internet And Mobile Association of India (IAMAI) released a joint report today, on the Impact of GST on Online Marketplaces. The report provides an overview of the conditions under the existing indirect tax regime and attempts to identify the key factors that might prove to be important for online marketplaces under the proposed GST regime.

Online marketplaces are on the rise and companies like Flipkart, Snapdeal, Amazon and others are the flag-bearers of e-commerce in India and are responsible for converting millions of Indians into online shoppers. The complex and ever-evolving ecosystem of online marketplaces, involving multiple parties and transactions across nations, is giving rise to a plethora of international and India tax and regulatory issues. Since the introduction of the GST regime will affect the very fundamentals of how business is carried out in India, it is essential to reflect upon the impact on online marketplaces.

Areas of improvement identified in the IAMAI-PwC Report:

  • Difficulties in determining the jurisdiction in which value creation takes place and, consequently, the right to tax
  • Multiple levy of taxes at different stages of transactions and implications of the FDI policy
  • Ambiguity on the taxation of digital supplies
  • Lack of clarity among authorities regarding various online marketplace business models, resulting in conflicting claims on the jurisdiction entitled to tax a given transaction
  • Requirement of the marketplace to pay tax and multiple compliances

Commenting on the issue, Sandeep Ladda, Partner & Leader – Technology & E-commerce, PwC India said, “The proposed GST is perceived as the single biggest indirect tax reform in India and is expected to bring in a simpler tax structure with a seamless credit chain. The ‘one tax, one market’ concept on which GST is based should be a welcome step for online marketplaces. To create clarity in terms of the tax treatment of online marketplace sector transactions, sector-specific provisions need to be introduced in the GST regime. The companies will have to follow the ‘whole of business’ approach for GST impact assessment and implementation, where tax and business advisory teams work together to provide a seamless service to clients that covers all necessary business aspects. Only then will the sector be able to utilise its potential in this market.”

Key recommendations made in the IAMAI-PwC Report:

  1. Specific provisions for e-commerce and defining e-commerce transactions clearly: If the rules framed under GST put the onus on e-commerce players to disclose and provide information, the provisions should be assessee friendly and should not be so stringent as to lead to a severe penalty or prosecution exposure for e-commerce companies.

  2. Defining Place of Supply: The definition of the ‘location of service provider’ should be provided clearly and the place of supply for e-commerce service providers should be based on the location of the service provider in the case of B2C transactions and that of the service recipient in the case of B2B transactions

  3. Interstate services vs intrastate services: Specific rules should be established on when a service will be deemed to be interstate or intrastate. This is imperative for e-commerce transactions as it is difficult to identify interstate transactions in the case of services provided over the Internet.

  4. Liability to pay tax: Should be clarified that the liability to deposit GST in the case of a transaction taking place through an online marketplace in respect of sale of goods will be the seller’s and not that of the online marketplace company. Online marketplaces should only be liable to pay taxes on the service fees they earn.

  5. Rate of tax: A lower rate should be prescribed specially for services (including e-commerce services) to avoid an increase in costs. The rate should not be more than 18%. Also, the rate should be kept uniform throughout the country in light of the ‘one tax, one market’ concept.

Ends

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