Model GST Unleashed, Concerns for E-commerce Industry

The finance ministry have released model draft GST law, earlier this week. This notification has brought electronic commerce under its purview. It is to be noted that the development has come at a time when the sector is going through a rough patch due to dwindling funds and mounting losses.

The chief ministers of various states have almost cleared the way for the rollout of GST from 1 April 2017 may opens up some major challenges for the e-commerce industry.

Mahesh Jaising, Partner, BMR & Associates LLP shared an overview on the model draft GST. Mahesh commented, “With release of the draft of Model GST by the Ministry of Finance, the momentum and renewed vigour towards implementation of the GST regime in India has picked up. The Government in all its earnest to ensure smooth passage of GST seems to have conceded to one of the key demands of industry and the Opposition of removal of additional 1% on inter-state movement of goods”.

 Mahesh is a Partner with the BMR & Associates LLP’s indirect tax practice in Bengaluru and leads the firm’s technology industry practice.

“The Model GST in its current form has provided for elaborate mechanism for availment and utilisation of input tax credit, which is a crucial for effective implementation of GST. The draft importantly lays down the place of supply of services which the industry (in specific to the service industry) has been eagerly awaited.” Mahesh also added.

The GST regime will essentially tax the goods and services and all online purchases at the first point of transaction, as the per model draft. The reform is aimed at subsuming all indirect taxes to create one national market.

Bringing e-commerce under the GST regime will resolve the big tax issues that these companies face in various states now.

“The Model GST indeed reflects that the Government has been working in full force towards the GST implementation. Now, all eyes are on the upcoming Monsoon session of the Parliament and one is hopeful that the critical & awaited GST Constitutional Amendment Bill is indeed passed, paving the way for implementation of the GST regime in India in April 2017,” says Mahesh of BMR while explaining the implementation issues of GST and overall macro-economic scenario of the country.

Coming over to a brief background of GST, this law affirms the basic edifice of a dual GST structure with the States empowered to levy State GST (the ‘SGST’) and Centre to levy Central GST (the ‘CGST’) on intra-state supplies of goods and services with Integrated GST or IGST being imposed by the Centre on import as well as inter-state supplies of goods and services.

The GST law also covers provisions on return, levy of interest, penalty, remission, audit, assessment, inspection as well as regular as well as alternate dispute resolution mechanisms.

Unveiling of the Model GST Law ahead of the Monson Session (which hopes to witness the passage of the Bill), resonates well with assurances from the Government on its intent and commitment to roll out GST at the earliest.  Further, the release of GST Law could not have been timelier for businesses to start gearing up for the upcoming regime.

The present sneak view of the key points under draft of the GST Law would be followed soon with the detailed analysis by BMR of specific impact of the GST Law.  Please watch-out for BMR’s point of view on the Place of Supply proxies as well as on impact on key sectors such as Information Technology, E‑commerce, Financial Services (with specific focus on Banking and Insurance) Infrastructure, Real Estate and Retail.

States like Uttarakhand, Assam and Bihar recently imposed a 10 percent entry tax on the goods sold online. There were fears that more states are likely to follow in their footsteps. However, Flipkart and other e-commerce companies had alleged that the move to impose tax was not driven by clean hands and was a handiwork of the offline retailers.