GST in era of digitisation: Can changes in GST law help simplify compliance, promote ease of doing business?

‘As India’s digital economy is progressing rapidly, India’s GST law needs to address certain aspects that are irritants in the digital trade.’

GST
Modest changes in the GST law could help in removing irritants in India’s digital journey. (representational image)

By Saloni Roy and Anjana Verma

It would be appropriate to say that today’s India thrives on its digital market. With a splurge of e-commerce platforms over the last few years, the local market / stores are struggling to maintain stable sales. 

With the vision of making a self-reliant India, the Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry of Commerce is building an Open Network for Digital Commerce (ONDC). 

The idea behind ONDC is to enable local commerce across segments, such as grocery, food order and delivery, hotel booking and travel on a single platform. Any customer looking for a particular product would be able to see all the suppliers, supplying that product (irrespective of the platform the supplier is associated with) on one platform and make their choices depending upon factors like pricing, proximity, etc. 

Thus, ONDC will give an opportunity to smaller suppliers to operate on a same platform with other larger e-commerce suppliers.

Certain state governments (such as Telangana, Jammu & Kashmir and Andhra Pradesh) have also announced policies to encourage innovation in the IT sector and promote start-ups. All these steps are directed towards strengthening the digital economy, amongst others. In a recently made statement, the country’s Finance Minister estimated India’s digital economy to be at US$ 800 billion. 

As India’s digital economy is progressing rapidly, India’s GST law needs to address certain aspects that are irritants in the digital trade. 

As per the GST law, typically, a supplier is required to obtain GST registration if it surpasses the mandatory threshold in a year (INR 40 lakhs and 20 lakhs in case of goods and services, respectively). Contrastingly, sellers supplying goods through e-commerce platforms are mandatorily required to obtain GST registration, regardless of their turnover. In other words, turnover-based exemption benefit is not available to sellers making online sales of goods (even if there is a nominal sale). E-commerce suppliers are also not permitted to avail the composition scheme (which is a simplified scheme for smaller suppliers). This results in an increased compliance burden for such sellers. Therefore, many small businesses shy away from joining online platforms. 

While multiple representations have been made to GST Council to bring in parity between sellers supplying goods online at par with those supplying offline, no outcome has been achieved so far.

In case of certain online supply of services, the liability to pay GST is on the operator and not on the service provider. Till end of last year, for passenger transportation, housekeeping and accommodation services, the liability to pay GST was on the e-commerce operator. However, at the beginning of this calendar year, GST law was amended to include the following additional services, wherein GST is now to be paid by the operator:

  • Restaurant services (except those restaurants which are located in hotels providing accommodation services above INR 7500/day/ room); and
  • Passenger transportation services provided by omnibus or any other motor vehicle.

The above change brought the transactions undertaken by unregistered suppliers also under the tax net. This has resulted in increasing the value of services to the extent of GST, simultaneously increasing the compliance burden on the operator.

For bringing in ease of doing business for e-commerce operators, some reforms could be made in the GST regulations. For instance, sellers could be permitted to make online sales if their turnover is below the prescribed threshold limit without mandatory GST registration. As an alternative, PAN number or Aadhaar number (for individual assesses), can be considered for authentication mechanism for onboarding such suppliers. 

Simultaneously, compliances could be toned down and simplified returns could be introduced for registered suppliers, with a smaller turnover (say INR 1-2 crores). They could also be allowed to avail the benefits of the composition scheme.

Till the time ONDC takes to revolutionise the Indian ecosystem of suppliers and customers, another step which could be taken is educating the smaller suppliers on GST laws and introducing user-friendly measures for tax payments and filing returns.

Another important part of India’s growing digital economy are the overseas suppliers engaged in online supply of books, songs, videos, games, software and such similar content to individual customers (B2C for personal consumption). The pandemic has contributed significantly towards creating substantial demand for such supplies. 

Due to the lack of awareness, some of these suppliers are not yet registered for GST. Those who are registered find the GST compliances cumbersome. They are required to issue invoices in the format prescribed in the GST law, which overseas suppliers find difficult to implement. Therefore, a simpler format could be devised for them.

Similarly, they are also expected to maintain a complete database of the Indian customers with their complete addresses. This is because GST law requires tax to be recognised for each state separately. Accordingly, simplification of the GST return format (which does not require state wise declaration of tax) could be an effective way to achieve ease of doing business in India.

To sum up, modest changes in the GST law could help in removing irritants in India’s digital journey. 

(Saloni Roy is Partner, Deloitte India and Anjana Verma is Director, Deloitte India. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)

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