At a press conference organised by FICCI on Thursday, the heads of Amazon, Flipkart, and Snapdeal all found common cause as they expressed their worries about the TCS (Tax Collection at Source) provision of the GST (Goods and Services Tax). Under this provision, online marketplaces are responsible for collecting - and paying - taxes on behalf of their sellers. This is something that all three companies, the major players in the e-commerce space in India, are against, as they argue it will hamper the growth of e-commerce.
Currently, e-commerce operators share data on sales to the government periodically to ensure tax compliance. In the proposed model, additional TCS reporting, reconciliation, and governance could lead to greater complexity of business operations, and block capital, the companies argued. They contended that the clause is detrimental towards e-commerce companies that have brought in
billions of dollars of investment. The draft model GST law is due to be finalised at the end of this month.
Kicking things off, Snapdeal co-founder and CEO Kunal Bahl stated that "e-commerce is vociferously for GST." This was a sentiment that was echoed by Amit Agarwal, Amazon India Head, who added that TCS can change the growth trajectory of e-commerce, and that is a cause for concern. "Tax collection at source is an exception created for online, it isn't there for offline," he added.
"All of us are investing ahead of scale and a lot of the investment is going into building the right infrastructure and ecosystem, in training/educating sellers and bringing them online and that attracts consumers to come to our marketplaces... This flywheel has been spinning for the last few years... when the ecosystem gets excited, a lot of other industries benefit," Agarwal said.
Flipkart co-founder Sachin Bansal added, "none of us is saying that GST is bad, it is a transformative step for e-commerce," but added, "tax collection at source is an area of concern in GST for e-commerce."
"Due to TCS, close to RS. 400 crores per annum of capital will be locked into the system," he added. "It will hamper working capital."
Given that there are thousands of sellers and merchants on each platform, the shopping portals say TCS will be cumbersome and time consuming, and discourage sellers. "Success of e-commerce industry is contingent upon the success of small businesses," Bahl added.
"The proposal, while adding needless complexity for the sellers, provides no benefit to the tax authorities and will lead to duplication of information followed by the need for its reconciliation," Bahl also said.
They say a thorough impact analysis of this tax provision on the online marketplace has not been carried out diligently. Now with the draft model GST law due to be finalised at the end of the month, the urgency is apparent.
FICCI Secretary General Dr A Didar Singh also said that "e-commerce created the first national market of the country, GST just enhances that."
On the risk of tax evasion by sellers, Bansal said that sharing of information can help prevent this. "Tax evasion can be avoided by sharing of information," he said. "We are already doing this with the states."
Gadgets 360 has reached out to all the three companies seeking further comments, and we will update this article on getting replies.
A tax expert joined us to talk about the impact of GST on prices of gadgets and IT services in India on Orbital, our weekly technology podcast. You can subscribe to it via Apple Podcasts or RSS or just listen to this episode by hitting the play button below.