Flipkart, Amazon, Snapdeal condemn a provision in GST draft that requires them to deduct tax out of the total sum payable to sellers and remit it to the government

Flipkart’s co-founder said that the GST is one of the most forward-looking tax initiatives and will have a transformative impact on the sector. Photo: Hemant Mishra/ Mint

New Delhi: Flipkart, Amazon India and Snapdeal on Thursday unanimously opposed tax collection at source (TCS), a new framework proposed under the model Goods and Services Tax (GST) law to tax sellers on Internet marketplaces.

The proposal, if implemented, will block crucial working capital for sellers and may cause them to move offline, the three online retailers said.

Under the regulation, e-commerce firms will have to withhold the tax payable by the sellers on every transaction and deposit it with the government on their behalf. The provision is expected to take effect on 1 July along with the national rollout of GST.

At a press conference called by the Federation of Indian Chambers of Commerce & Industry, the three companies said TCS is a “major dampener” for the industry and may limit growth.

“We are estimating that close to Rs400 crore per annum of capital will be locked in the system, which will not be accessible to sellers and straight away eat into their working capital,” said Sachin Bansal, co-founder of Flipkart, the country’s larger e-commerce marketplace. “This will deter sellers from listing with us and working with us over a period of time.”

According to Bansal, the regulation is unfair as it only applies to sellers on e-commerce marketplaces and does not cover offline retailers and businesses following the inventory model.

“If they (sellers) know that their working capital is going to get shut in the online selling world, they will take the same goods offline. It will have a severe impact on us,” he said.

Currently, online sellers file taxes like any other business towards the end of the financial year (which covers the tax for goods sold both offline and online). Under TCS, tax on goods sold online will be deducted upfront, and adjustments or claims will be allowed over the subsequent 30-50 days.

E-commerce companies, instead, suggested sharing of seller-wise data with the authorities to prevent tax avoidance.

“We can achieve the objective through real-time data information sharing. We are digital businesses; it is very easy for us to provide information on a real-time basis. We don’t need human processes and cumbersome regulations to slow down the process,” said Amit Agarwal, head of Amazon India.

According to Agarwal, TCS will increase the compliance burden for e-commerce companies as they would have to maintain tax collection records, furnish them to the government every month and undertake reconciliation. This would entail a sizable cost at the end of the e-tailer.

The regulation may also lead to loss of business for two-thirds of the medium and small enterprises that sell on e-commerce websites, said Snapdeal’s co-founder and chief executive officer Kunal Bahl.

“The proposal of tax collection at source, directed only at e-commerce marketplaces, in the draft model GST law, will hurt lakhs of small sellers by making online sales expensive and cumbersome for them,” he said.