The Economic Times ran this story on its front page today with the title - "Small e-comm vendors will have to pay GST upfront".
There are factual inaccuracies in this article, which makes me realise that GST awareness is way below what it should be, given the fact that the GST rollout is hardly two months away.
So here is a quick lowdown on GST - and the error of understanding in the impact of GST on small e-Commerce vendors.
About GST: GST, or Goods and Services Tax, is undoubtedly the most ambitious and remarkable tax reform in the independent history of India. It is an Indirect Tax - a destination based consumption tax. For the first time, Goods and Services are being taxed at the same time, and by two different levels of the Government, the Centre and States, simultaneously. It is in the form of Dual Tax - both Centre and States would be levying GST on every transaction dealing with the Supply of Goods or Services. The Constitution had to be amended to allow both Centre and States to have joint powers in taxing Goods and Services. For the first time, we will see, One Tax One Nation principle in operation for most Goods and Services, with roughly the same rates of tax across India.
GST and small e-Commerce vendors: Among the various GST provisions is that of Tax Collection at Source (TCS) by electronic commerce operator (Section 52 of the CGST Act). As per this section, vendors selling goods on the various-Commerce sites would have upto 2 % of the sale proceeds collected by the e-Commerce operator for depositing with the Government, 1% on behalf of the Central Govt. (Central GST) and 1 % on behalf of the State Government (State GST). In case the sale is classified as an Inter-state sale, the tax collected at source would be upto 2 % under the Integrated GST Act (IGST). As per news report, the Revenue Secretary Hasmukh Adhia has informed that the GST council in its recent meeting in Srinagar has decided a 1 per cent Tax Collected at Source (TCS)).
The first error in interpretation of the GST Acts is that deduction of 1 % will impact all vendors registered on e-Commerce sites. As per the CGST Act, only those e-Commerce operators will have to make the deduction where the consideration with respect to such supplies is to be collected by the operator. So, if you are a small e-Commerce operator, and you are only using the e-Commerce operator to showcase your product, you make your own shipment and collect the proceeds of sale directly from the customer, then the operator need not collect tax at source - the money does not flow through him to collect it at source.
The second error in interpretation is that if your sale through an e-Commerce operator is liable for Tax Collection at Source of 1 %, and such tax amount gets deducted, then you can claim refund if your aggregate turnover in a year is below Rs 20 Lakh. This too is wrong - and for a very fundamental error in understanding regarding Indirect Tax, and the exemption limit. GST is a tax on consumption - not on supply.Though the seller or provider of Goods and Services is identified by the GST Act as a "Taxable Person", he is in effect a tax collection agent for the Government as on payment of tax on goods or services supplied by him "he is deemed to have passed on the full incidence of such tax to the recipient". It is the consumption which is taxed - not the supply. The exemptions are provided not on consumption, but on certain category of "Taxable Persons" who need to collect and pay tax, primarily to ease the compliance cost for small suppliers of goods and services. The definition of a Taxable person is given in the GST Act as: “taxable person” means a person who is registered or liable to be registered under section 22 or section 24". In case your aggregate turnover in a year is less than Rs 20 lakh, then you do not fit the definition of Taxable Person under Section 22, but you are a Taxable Person under Section 24 of the Act (24(ix)), which states that "persons who supply goods or services or both, ..through such electronic commerce operator who is required to collect tax at source under section 52". So, if you supply through an e-Commerce operator who is required to Collect tax at source under Section-52, then you are a Taxable Person, and you are liable to pay tax.
It is however to be noted that in case the vendor is making inter-state supplies, then again he is a Taxable person, irrespective of the turnover, and nature of e-Commerce operator.
There are factual inaccuracies in this article, which makes me realise that GST awareness is way below what it should be, given the fact that the GST rollout is hardly two months away.
So here is a quick lowdown on GST - and the error of understanding in the impact of GST on small e-Commerce vendors.
About GST: GST, or Goods and Services Tax, is undoubtedly the most ambitious and remarkable tax reform in the independent history of India. It is an Indirect Tax - a destination based consumption tax. For the first time, Goods and Services are being taxed at the same time, and by two different levels of the Government, the Centre and States, simultaneously. It is in the form of Dual Tax - both Centre and States would be levying GST on every transaction dealing with the Supply of Goods or Services. The Constitution had to be amended to allow both Centre and States to have joint powers in taxing Goods and Services. For the first time, we will see, One Tax One Nation principle in operation for most Goods and Services, with roughly the same rates of tax across India.
GST and small e-Commerce vendors: Among the various GST provisions is that of Tax Collection at Source (TCS) by electronic commerce operator (Section 52 of the CGST Act). As per this section, vendors selling goods on the various-Commerce sites would have upto 2 % of the sale proceeds collected by the e-Commerce operator for depositing with the Government, 1% on behalf of the Central Govt. (Central GST) and 1 % on behalf of the State Government (State GST). In case the sale is classified as an Inter-state sale, the tax collected at source would be upto 2 % under the Integrated GST Act (IGST). As per news report, the Revenue Secretary Hasmukh Adhia has informed that the GST council in its recent meeting in Srinagar has decided a 1 per cent Tax Collected at Source (TCS)).
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| Image Courtesy - Economic Times (22/05/2017). Image edited with X superimposed on image |
The first error in interpretation of the GST Acts is that deduction of 1 % will impact all vendors registered on e-Commerce sites. As per the CGST Act, only those e-Commerce operators will have to make the deduction where the consideration with respect to such supplies is to be collected by the operator. So, if you are a small e-Commerce operator, and you are only using the e-Commerce operator to showcase your product, you make your own shipment and collect the proceeds of sale directly from the customer, then the operator need not collect tax at source - the money does not flow through him to collect it at source.
The second error in interpretation is that if your sale through an e-Commerce operator is liable for Tax Collection at Source of 1 %, and such tax amount gets deducted, then you can claim refund if your aggregate turnover in a year is below Rs 20 Lakh. This too is wrong - and for a very fundamental error in understanding regarding Indirect Tax, and the exemption limit. GST is a tax on consumption - not on supply.Though the seller or provider of Goods and Services is identified by the GST Act as a "Taxable Person", he is in effect a tax collection agent for the Government as on payment of tax on goods or services supplied by him "he is deemed to have passed on the full incidence of such tax to the recipient". It is the consumption which is taxed - not the supply. The exemptions are provided not on consumption, but on certain category of "Taxable Persons" who need to collect and pay tax, primarily to ease the compliance cost for small suppliers of goods and services. The definition of a Taxable person is given in the GST Act as: “taxable person” means a person who is registered or liable to be registered under section 22 or section 24". In case your aggregate turnover in a year is less than Rs 20 lakh, then you do not fit the definition of Taxable Person under Section 22, but you are a Taxable Person under Section 24 of the Act (24(ix)), which states that "persons who supply goods or services or both, ..through such electronic commerce operator who is required to collect tax at source under section 52". So, if you supply through an e-Commerce operator who is required to Collect tax at source under Section-52, then you are a Taxable Person, and you are liable to pay tax.
It is however to be noted that in case the vendor is making inter-state supplies, then again he is a Taxable person, irrespective of the turnover, and nature of e-Commerce operator.
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NIFM - (National Institute of Financial Management - www.nifm.ac.in) , is an autonomous body under Ministry of Finance, is an accredited GST Training Partner of NACEN. We conduct regular GST Awareness program of 3 days duration for officer of GoI, and for trade and industry.