Tax & Accounting Blog

GST Tackles Electronic Commerce

Blog, Indirect Tax, ONESOURCE June 19, 2016

The Finance Minister “officially” released the GST model law this week, it had been released a couple of months earlier. The model law confirms the dual GST system proposed for years. It also had a provision to address electronic commerce and its targets electronic commerce operators to collect and remit tax. Electronic commerce was defined in the law as:

shall mean the supply or receipt of goods and / or services, or transmitting of funds or data, over an electronic network, primarily the internet, by using any of the applications that rely on the internet, like but not limited to e-mail, instant messaging, shopping carts, Web services, Universal Description, Discovery and Integration (UDDI), File Transfer Protocol (FTP), and Electronic Data Interchange (EDI), whether or not the payment is conducted online and whether or not the ultimate delivery
of the goods and/or services is done by the operator;

Under the law, the operators would collect tax at a specified rate under the Tax Collected at Source mechanism. The operators must report the amounts collected monthly. Although new for India, the requirement to shift the tax collection burden to those who control the modalities of commerce is a global trend. A number of countries, require those who operate electronic commerce networks to register and collect sales to consumers of remote services.

Today Indian states are imposing entry taxes on goods which are ordered online to generate tax revenue as these could be outside of the standard VAT/CST regime. Although a burden these entry taxes are nothing compared to the complex two jurisdiction arrangement introduced for interstate Brazilian electronic commerce transactions at the beginning of the year. Unlike the present entry taxes in India or the Brazilian tax system, the GST will apply to both goods and services so electronic commerce operators will have a high volume of transactions to account for and collect tax for as the volume of service transactions in India will continue to dramatically increase.

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