Goods and Services Tax for ecommerce in India by August 2012

In Union Budget 2012-13, Finance Minister Pranab Mukherjee in his speech has made the announcement to put in place Goods and Services Tax (GST) by August 2012. The ecommerce players have been in discussion with the government for a long time, to bring about a change in taxation policy through the incorporation of Common Goods and Service Tax.

The industry expects prices of products sold online to come down with the implementation of the Goods and Services Tax (GST). “We welcome the announcement of the implementation of GST this year. We are awaiting further details on this announcement. However, it will definitely make our supply chain more cost-effective and this in turn will translate into better value and experience for our consumers” said Karandeep Singh, CFO, Flipkart.

In March 2011, the 115th Amendment Bill was introduced to enable Parliament and state legislatures to make laws for levying GST on every transaction of supply of goods and services. Some goods, such as crude petroleum, diesel, petrol, aviation turbine fuel, natural gas and alcohol will not fall under the purview of the GST.

The GST will have a positive impact on retail as a whole, said Sunjay Guleria, co-founder of online private label site, Sher Singh. “Whatever benefits retail will obviously benefit e-retail as well,” he added.

Besides, the Constitution of India, demarcates taxing powers in a two-tier structure wherein levies on production and international imports are with the Union and post- production levies rest with the states.

However, the Centre levies excise duties on manufactures and import/countervailing duties on international imports apart from levying a tax on services under various taxing and the residuary entry in the Union List.  The states levy VAT on goods sold or entering in the state under various entries in the state list. Implementation of GST calls for effecting widespread amendments in the Constitution. The various levies of the Union and the states will also to be streamlined.

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•      It will depend on the manner resources are shared between centre and the states.

•      The phasing out of CST may go a long way in addressing the issue of inter-state trade and commerce in goods but the       crucial issue regarding services originating in one state and being consumed in other state still remains;

•      Need of a robust and integrated MIS dedicated to the task of tracking flow of goods and services across the country and rendering accurate accounting of levies associated with such flow of goods and services; and

•      The litigious issue of taxing financial services and e-commerce need to be appropriately addressed and integrated.

At present, due to differences in the tax structure across states, online commerce ventures, which mostly operate on the hub-and-spoke model, have set up warehouses in cities where taxes are lower.

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