GST and Telecom, Media and Technology sector: What’s in store?

By: and |
New Delhi | Updated: July 30, 2016 1:16:19 PM

The rapidly evolving Telecom, Media and Technology (‘TMT’) sector, which includes e-commerce, information technology, software, digital wearables, telecom, broadcasting, and the like, needs robust indirect tax laws which can match up to its latest advancements.

rupee dollar, rupee dollar exchange rate, rupee dollar exchange rate today, rupee newsThe Model GST law does not provide upfront GST exemption for supply of goods and services to exporters of services, or to STP, SEZ, EOU, EHTP units. However, the law mentions that exports would be zero rated.

The rapidly evolving Telecom, Media and Technology (‘TMT’) sector, which includes e-commerce, information technology, software, digital wearables, telecom, broadcasting, and the like, needs robust indirect tax laws which can match up to its latest advancements.

The recently released Model GST law endeavours to mark an end to myriad issues that the TMT industry has been grappling with. Issues such as double taxation, input credit restrictions, entry taxes, valuation disputes etc. have been faced by the TMT sector.

Currently, the federal indirect tax structure has led to various issues on tax treatment of online retail platforms and online service providers. While VAT/ entry tax authorities in the consumption States are constantly attempting to tax online retail platforms, the service tax authorities have also expanded service tax net, by introducing the concept of aggregator.

The proposed law, also covers concepts of ‘aggregators’, for online service providers providing underlying services under their brand, as well as ‘e-commerce operators’, which own, operate or manage an electronic platform engaged in supply of goods/ services. In this regard, place of supply for goods has been linked to location where the movement of goods terminates for delivery to recipient. Further, with respect to services, the place of supply is linked to recipient of service (in most cases), with exceptions provided for certain specific scenarios.

Certain supplies like supply of goods by a taxable person to another person in the course of furtherance of business have been specified as supply without consideration. Promotional/free offers by online retail platforms is likely to fall under such category of supply. Clarity to whether such supplies would be considered as taxable supplies is awaited.

The proposed law provides that tax is to be collected (‘TCS’) by the e-commerce operators from the collections made on behalf of such sellers which are operating through their platform. An increased compliance burden on online retail platforms is certainly on its way!

Another pillar of TMT industry is the information technology sector. The Model GST law clearly articulates intangibles as ‘service’. However, it is still unclear as to whether software products on tangible medium such as CD, USB etc., will also fall under ambit of service or goods.

With the requirement of decentralised registration and compliances in each State of operation, service providers would need to deal with complexities of payment of taxes and compliances in multiple States.

Further, the place of supply rules, provide complex provisions in relation to telecommunication services including data transfer, broadcasting, cable and direct to home services. The place of supply for fixed telecommunication line, dish antenna, leased circuit would be the place of installation. It is difficult to ascertain place of installation since the lines and circuit often run through States and are also subsea, in some cases.

The Model GST law does not provide upfront GST exemption for supply of goods and services to exporters of services, or to STP, SEZ, EOU, EHTP units. However, the law mentions that exports would be zero rated.

The Model GST law, also provides for supplies comprising of both goods and services to be considered as composite supplies. However, no specific rules have been framed for their treatment except in case of transactions of deemed sale so as to provide for taxation either as supply of goods or as supply of services.

While GST is expected to bring mixed emotions to TMT sector, it is imperative to start preparing for the GST transition early as it is expected to bring plentiful changes across business.

Since the draft law is out, it is important that the sector as a whole voices its suggestions to the Government so that GST law, as and when it comes, is embraced in good spirit and leads to a reduction in litigation as well as aids in conducting business with ease.

Saloni Roy is a Partner with Deloitte Haskins & Sells LLP and Sheena Sareen is a Manager with Deloitte Haskins & Sells LLP

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