New Delhi: The rapidly expanding e-commerce companies on Tuesday made a strong case for keeping them out of the proposed GST net but the state finance ministers appeared in no mood to oblige.
At the first meeting of the Empowered Committee of State Finance Ministers held after the Parliament approved the GST Bill, online retailers said they only provide a 'platform' to vendors and customers and do not make money out of sales made.
According to representation made at the meeting, companies like Flipkart, Amazon India and Snapdeal are only 'service providers' to the vendors and as such are liable to pay GST only on service income.
When panel chairman and West Bengal Finance Minister Amit Mitra questioned the billion dollar valuations some of the so-called online platforms command, the e-retailers said their source of revenue is advertisement on which which they pay service tax.
Vendors selling goods through their portals should be liable to pay GST, they argued.
NASSCOM in its representation said the sector is creating huge job opportunities and allowing small industries to sell their products.
Stating that e-commerce facilitates competition, it said in the sector, one cannot avoid being in tax bracket.
Mitra however said the discussions so far have concluded that the e-commerce sector is generating millions of dollar but pay practically no taxes.
According to Mitra, consumer buying products online pay VAT, producer pays excise duty but these companies go untaxed on the pretext that the transaction is just a pass through.
But their business is USD 6-8 billion. "E-commerce brings in competition, but you are also adding some value. Else how are your companies generating so much valuation," Mitra observed.
He said the issue may become a political hotpotato as the end product will come under GST but the intermediary will not pay tax.
Mitra asked the e-commerce companies to give in writing how the tax structure for such companies should be under the new GST regime, which the government proposes to roll out from April 1, 2017.
GST is to subsume most of the indirect taxes like excise duty, VAT and service tax.
The model draft GST law has brought e-commerce under its purview. Under it, all online purchases will be taxed at the first point of transaction.
Bringing e-commerce under GST is expected to solve some of the tax woes of such companies. States like Uttarakhand, Assam and Bihar recently imposed a 10 percent entry tax on the goods sold online and there were fears that more states may follow suit.
The GST regime is seen as ending such arbitrary moves by state governments.