GST may stifle innovation in e-commerce space: IAMAI

Industry body says the Bill's chapter on the sector has some definitional problems that can lead to unnecessary confusion

Good and Services Tax (GST) bill creates unnecessary confusion for e-commerce companies as it boxing them in poorly-defined categories, said Internet & Mobile Association of India (IAMAI), the industry lobby group which represents companies like Flipkart, Snapdeal and Amazon on Wednesday.

"The GST Bill gives due recognition to the 'e-commerce' sector and helps resolve a long-standing challenge for the sector by clarifying that the first point of transaction will be the point of taxation," IAMAI said in a statement. "However, the chapter on e-commerce has some definitional problems that can lead to unnecessary confusion." This can have a detrimental impact on innovation in the e-commerce space.

"Straight jacketing 'e-commerce' into poorly-defined categories will stifle innovation, which will not only affect the fortunes of e-commerce companies but will also prevent better services for customers in India," it said.

According to IAMAI, the bill contains imprecise and overlying definitions for e-commerce activities failing to take into account the different business models that exist in this sector.

For instance, the definition of 'aggregator' suggests it applies only for services and that too, only for 'listing' of sellers. The GST bill defines 'aggregator' as a service that lists 'persons providing service 'X' under the brand name or trade name of the said aggregator. However, under this definition, online classifieds like Naukri will not qualify as 'aggregator', because jobs listed on Naukri are actually offered by other companies in their name, the industry lobby argued.

The GST definition also fails to recognize online classifieds such as Olx and Quikr, which provide listing services for 'goods', as it only defines 'aggregators' for services.

Another issue that arises from the current avatar of GST bill is that Online Travel Aggregators (OTA) like MakeMyTrip and Yatra can be wrongfully qualified as 'operators' rather than 'aggregators', as they facilitate payments and supply of services, as opposed to listing 'persons providing service of a particular kind under the brand name or trade name of the said aggregator'.

The bill also defines 'aggregators' and 'electronic commerce operators' (or 'operators') as two separate categories, with tax liabilities defined for the 'operators', possibly leading towards uncertainty about whether the 'aggregators' too are subject to the same liabilities, the industry lobby noted.

"These discrepancies may lead to misinterpretation of the tax provisions by both regulators and the internet services companies, leading to unnecessary compliance related conflicts in the coming days," said IAMAI.

Meanwhile, Sachin Bansal, the poster boy of Indian e-commerce and co-founder of Flipkart has said that the clause relating to collection of taxes at source in the proposed GST draft is a concern that would impact the industry. "We believe that TDS process that has been recommended -- about holding some tax and paying that on behalf of the seller -- that I think is some thing that will be very difficult for us to implement in practice," Bansal told reporters in Bengaluru on Wednesday.