E-commerce and GST: Moving from grey to white?

E-commerce has been one of the high growth industries over the last few years in India. Realizing the importance and potential of the internet, various policy measures such as Digital India and 100% foreign direct investment in various models of e-commerce have been launched by the government of India.

The dynamics and fast changing methods of e-commerce have made taxation challenging for governments across the world. A clearly defined taxation policy is needed to nurture this young yet powerful mode of doing business.

With India closing in on implementation of a goods and services tax (GST) regime, there is anticipation that the GST law will provide a stable taxing mechanism and clarity on most of the disputed issues.

Conceptualizing and defining the territorial nexus for taxing an e-commerce transaction is the most challenging aspect faced by countries world over. In the EU, initially, business-to-consumer electronically supplied services were taxed in the jurisdiction where the service provider was located. Luxembourg reduced its tax rate on such supplies and consequently business relocated to Luxembourg, creating a distortion in the concept of destination-based consumption tax. These rules were amended in January 2015 to levy tax in the state where consumer was located.