GST: E-commerce firms Flipkart, Amazon likely to get 6-month tax breather

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The provision of tax collected at source (TCS) imposed on suppliers selling products on e-commerce websites like Flipkart and Amazon in the goods and services tax (GST) regime is likely to be deferred by six months. 

The recommendation by the law review committee may come as a breather for e-commerce players, which have been strongly opposing the additional levy. 

The TCS of 1 per cent to be charged collectively by the Centre and states was kept in abeyance till April 1, 2018, by the GST Council in October along with the reverse charge mechanism and the e-way bill. However, in light of revenue leakage concerns, the e-way bill to track the movement of inter-state supply of goods will be implemented from February 1, while reverse charge mechanism on composition dealers may be implemented any time now. 

“The provision pertaining to TDS and TCS can be kept in abeyance for at least six more months, is the view taken by the law committee,” said an official. A final decision on deferring the TCS further will be taken by the GST Council in its next meeting. 

“Implementation of the TCS will have to be through the GSTN portal, which is yet to stabilise. The move will not only shift the compliance burden on companies but also burden the system,” said another official.

The TCS will essentially be collected by the e-commerce players while making the transaction payment to sellers on the marketplace website.

The model goods and services tax law approved by the GST Council provides for an up to 1 per cent TCS deduction by e-commerce operators. In the wake of stiff opposition by the e-commerce industry, the TCS provision in the GST law was earlier toned down to include ‘up to 1 per cent TCS’ as against a 1 per cent levy under both the Central GST and the State GST, taking the total incidence at 2 per cent. For the government, the TCS will help check tax evasion by enabling collection of tax and information at source. However, it will suppress cash flow for the industry, which is operating on thin margins.

The TCS comes at a cost for suppliers selling on the e-commerce portals as their working capital will get be held up for a while before they can claim a refund. The industry had argued that the TCS would result in a lock-in of capital and also dissuade companies from selling through online portals. 

According to a statement by Flipkart last year, Rs 4 billion working capital would be locked up every year at the current scale. The e-commerce player said this would deter small and medium enterprises and sellers from selling on e-commerce platforms or going digital in their business. 

The TCS also increases the compliance burden on e-commerce players. The vendors will be able to claim credit for the TCS deductions based on the tax statement filed by the e-commerce operator. This means that the refund will be available to the vendor only in the next cycle. This will impact margins of vendors, the industry has argued.

Relief in sight
  • The TCS of 1% to be charged by the Centre and states was kept in abeyance till April 1
  • The TCS will essentially be collected by the e-commerce players while making the transaction payment to sellers on the marketplace website
  • The industry had argued that the TCS would result in a lock-in of capital and also dissuade firms from selling through e-portals
  • A final decision on deferring the TCS further will be taken by the GST Council in its next meeting