The tax that e-commerce marketplaces have to collect from sellers on their platform will likely be retained in the final draft of the Goods and Services Tax (GST) law to be vetted by the GST council on Saturday, a government officer familiar with the development said.

E-commerce companies have been lobbying against this, and argued that this will encourage more sellers to choose offline channels instead of the online one, and that it will increase the costs of compliance as well as doing business.

The draft GST law proposes that the e-commerce company, at the time of payment to a supplier for the goods supplied, collect up to 2% tax on the total payment made and deposit it with the government on behalf of the supplier.

“The provision will stay. E-commerce companies have flagged their concerns saying how these provisions are difficult to implement. But they also concede that it is doable," added the officer.

GST aims to remove tax barriers across states and create a unified market in India. The government hopes to implement GST from 1 July. To facilitate this, it aims to pass the supporting legislation for roll-out of this tax in the second half of the budget session starting 9 March. The government is hopeful that the GST council meeting in Udaipur on 18 February will give approve all the legislation—Central GST (CGST), state GST (SGST) and integrated GST (IGST).

Last week, in a press conference organized by industry lobby body Federation of Indian Chambers of Commerce and Industry (FICCI), Flipkart India, Amazon Seller Services and Jasper Infotech (which runs Snapdeal) came together to oppose the provision, Mint reported on 9 February (bit.ly/2lu4SfQ).

The marketplaces argued that the tax would block much needed capital for 25-50 days besides further squeezing small sellers by placing an additional burden on their working capital. They added that the tax discriminates between online and offline market places. And they protested the cumbersome reporting provisions.

Snapdeal, Paytm and Shopclues did not respond to emailed queries seeking comment.

According to provisions of the law, e-commerce companies have been mandated to deposit the TCS with the government within 10 days from the end of the month in which the tax has been collected on behalf of the suppliers. The companies also have to furnish an electronic statement containing details of the tax collected at source from their various suppliers with a detailed break up of the tax pertaining to CGST, SGST and IGST.

These entries have to match with the returns filed by the suppliers to enable the supplier to claim credit for the tax payment made.

The draft GST law had specially carved out a separate chapter to deal with taxation in the e-commerce sector after states expressed concern over loss of revenue arising from some small suppliers staying out of the tax net.

“TCS will create a lot of issues; it is a disincentive for people to trade online. A lot of money will get stuck in the system which will hurt the industry . The same purpose can be served by getting all the details of the suppliers from the e-commerce companies without levying TCS," said Bipin Sapra, tax partner at audit and consulting firm EY.

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