Budget 2022: E-commerce sector expects cut in tax burden, simplification of compliances
There is an instant need of making a number of changes in the direct and indirect tax processes. | Pixabay
The introduction of e-commerce has completely revolutionised the market. Today, it is the most convenient, efficient, and fastest form of trading used in B2C and B2B sectors. Amid the worldwide pandemic, e-commerce has grown exponentially. According to industry surveys, the e-commerce business in India is expected to rise to $200 billion by 2026, thanks to increasing internet and smartphone usage in both urban and rural areas.
E-commerce has altered the business landscape, boosting consumption by giving retailers direct access to customers and offering new job opportunities. The government's pillar initiatives on technology and digitisation, which has provided enormous technological innovations, new modes of digital payments/online wallets, data analytics capabilities, and the development of local logistics support, have indeed complemented growth in this sector in India.
In India, taxation and regulatory systems have been fluctuating and have undergone general changes to keep pace with the hot springs we see in the e-commerce environment. The e-commerce space is closely monitored and processed by tax regulators, with ever-increasing demands on commercial data from e-commerce operators to protect the interests of consumers and brick-and-mortar sellers. There is an instant need of making a number of changes in the direct and indirect tax processes.
The impact of the Equalization Levy, which was implemented in the Union Budget 2020, has been one of the most hotly disputed topics. The Equalization Levy affects the supply for orders placed by email or ERP with its broad scope. The rising list of services for which the tax burden has been moved from the actual supplier to the e-commerce operator has been a significant source of concern on the indirect tax front. This regulation burdens e-commerce facilitators with additional tax compliances, raising the cost of services and causing inequity.
The following are a few areas where tax and compliance reforms could help the e-commerce business run more smoothly and prepare for the next expansion stage.
Direct tax (Income Tax)
TDS U/S 194 O is a significant source of frustration for e-commerce businesses. COVID has already caused many business problems, including erratic sales cycles, a stymied supply chain, and a scarcity of workers. As a result of these circumstances, earnings have decreased, and in certain situations, losses have occurred. The deduction of the TDS amount causes a significant delay in receiving a refund, driving enterprises to run out of working capital. Because all sales made on E-commerce platforms are subject to TCS deduction under GST provision, the CBDT can obtain data from CBIC to combat the likelihood of tax fraud.
Similarly, where the value of a transaction exceeds Rs 50 lakhs in a financial year, Section 206C 1(H) demands a deduction of 0.1 percent of the sales consideration. The low tax shows that the government aims to prevent tax evasion rather than generate income, which is already covered by 194O and the TCS under the GST clause. These multiple incidents result in higher compliance costs, a lack of working capital and e-commerce traders being harassed. There is a need to rethink the applicability of this clause, especially for the welfare of small and medium-sized businesses.
Indirect taxes
To address the issue of excessive input credit, the government should limit the number of tax rates. Many businesses are stuck with extra input GST credit for which they can't collect refunds since the e-commerce supply chain encompasses several goods transactions and services provisions. The government should further simplify the return process by allowing GST reimbursement paid on capital goods.
Other regulations
The government has put numerous limits on FDI capital to protect the domestic retail industry. However, the Indian startups and e-commerce market is mature and has enough participants to prevent the risk of monopolising or exploiting small traders. As a result, the government should consider loosening the FDI rules and allowing FDI-backed firms to engage in multi-brand retail trading.
Aside from the existing Make in India initiative, the government should relax the provisions governing entity formation, labour, and employee regulations, attracting foreign capital and enabling more innovation, transforming it into a global manufacturing and innovation hub.
Summing up
The e-commerce industry has been burdened with many tax compliances, both direct and indirect, as well as continual business disruptions due to an ever-changing tax and regulatory landscape. In essence, the distinction between e-commerce and brick-and-mortar worlds from a tax and regulatory standpoint can limit the e-commerce space's growth. The industry is, then, waiting with bated breath to see how the Budget pans out for the players.
(The writer is Founder and CEO, Upscalio-E-commerce roll-up company)
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