The government in the run up to the Goods and Services tax (GST) rollout on 1 July, hardly three days away, has been pulling all stops to somehow keep its tryst with the destination tax. It would be a historic moment for the Prime Minister Narendra Modi because it would also be historical in the sense he would share the nocturnal space with his bête noire Pandit Nehru, the first prime minister of India, who made a stirring independence speech on the midnight of 14 August, 1947 from the august house of Parliament. Modi is all set to do an encore on 30 June midnight.
While there are lingering doubts over the GSTN hardware given the fact that online uploading of successive invoices is the lynchpin of the entire value added tax exercise and the nation is far from fully and seamlessly networked a la Sweden, the government is doing it bit to address niggling pinpricks.
First is the postponement sine die the operation of section 52 of the central GST Act that requires online portals to collect 1 percent ad hoc tax from traders using them to sell their wares in excess of Rs 2.50 lakh per annum. Under the marketplace model which is de rigueur both in India and the US, the portals be they Amazon or Flipkart only offer their robust portal for selling and collection of payments from the online buyers. Since the anonymous sellers might give the taxman the slip, the legislature prudently thought that the pincer of TCS (tax collected at source) often heard of in the context of income-tax must be extended to indirect tax i.e. GST as well. Thus, if a smartphone manufacturer sells through Flipkart smart phones to the tune of Rs 1 crore, Flipkart is required to collect Rs 1 lakh from the smartphone manufacturer which it would deduct together with its commission from the sale proceeds of smart phones. But this has been put off for the nonce. Thus both the portal and its users (sellers) have been given a breather but have not let off the hook.
In the US, they have been let off the hook so much so that buyers consciously prefer to buy online wherever possible with an eye on savings on account of sales tax. But the Indian government has consciously chosen not to toe the American line lest bricks and mortar sellers complain of non-level playing field.
The online sellers therefore must not open the bubbly. Reprieve from TCS does not mean reprieve from tax. In other words, the online sellers using the services of portals offering the marketplace model should not rejoice. Instead they must gird their loins for more diligent compliance of the GST---they themselves must pay the tax at the intervals prescribed. Under the TCS regime, they would be required to cough up to the treasury only the GST liability as reduced by TCS. To wit, in the above example, the GST liability of the smartphone manufacturer would be Rs 12 lakh assuming a 12 percent GST rate. Flipkart normally should have collected Rs 1 lakh and deposited it with the government on behalf of the smartphone manufacturer who would be required to cough up the remaining Rs 11 lakh. Now it has to deposit the entire amount of Rs 12 lakh itself till the TCS dispensation is restored.
One hopes the government would make the breather extremely short-lived, just a breather. TDS and TCS are excellent anti-evasion devices because the one deducting or collecting has all the details about the person from whose income/sales he has deducted or collected which would constitute the much-needed dossier for the taxman.
Published Date: Jun 27, 2017 03:20 pm | Updated Date: Jun 27, 2017 03:24 pm