E-tailers want TCS under GST deferred by three months; govt in no mood to budge

E-commerce companies, fearing dip in festive season sales, have made a strong pitch to push back by three months a plan to tax online marketplaces with a new levy from October 1, but the government is unwilling to accede, top sources told Moneycontrol.

According to Goods and Services Tax (GST) related laws, e-commerce companies will have to collect 1 percent as tax collected at source (TCS) for each transaction carried out on their online marketplaces.

Sources in the finance ministry said that the government does not plan to defer the move, given that it has already been pushed thrice since the implementation of GST from July 1, 2017.

Top e-commerce companies such as Flipkart, Snapdeal, and Paytm, among others, met finance ministry officials on Tuesday to seek clarity on the rules related to TCS, particularly on the place of registration, and returned products.

Sources in the finance ministry also told Moneycontrol that the government will come up with a list of clarifications in form of frequently asked questions (FAQs) on Monday, responding to the points that the industry has sought clarity on.

The levy, even though unlikely to yield a large amount in taxes, will still incrementally help the government move closer towards the monthly GST tax collection target of  Rs 1 lakh crore.

Revenue collection from GST declined to Rs 93,960 crore in August, the lowest in the current financial year 2018-19. The average collection during April-August was Rs 96,705 crore, less than the government’s monthly target.

E-tailers have suggested a staggered implementation: a zero rate TCS for the first three to six months, and later raise it to 1 percent. Such an approach, they argue, will provide a monetary breather to merchants and also get the entire process rolling.

“Since the amount is not very consequential, we suggested that the government start with a zero rate of TCS. This means that the entire process starts rolling out in terms of registration, disclosures or compliance that have been envisaged. The only thing that doesn't happen is a monetary impact,” said one of the members who attended the meeting.

"So it gives time to build maturity into the system," he added.

The idea is to ensure that the government gets to accumulate data and also leave out time to iron out the operational and procedural irritants.

Another person requesting anonymity said that this move will disrupt the ecosystem, especially since it is coming right ahead of the Diwali festival.

"This is a critical phase of the year and this implementation will cause too much disruption. This one percent levy is going to be a cost for the micro and small enterprises who sell on the marketplaces. They are definitely not going to absorb this cost and it will be passed on to the customers,” he said.

"It will also drive away small and micro enterprises away from the e-commerce segment. It is not just about the one percent amount that we are deducting it is a cost of compliance which he will have to incur," he added.

The industry has also expressed concern over issues such as places of registrations and tax deducted even when the customers returned the products.