GST laws may halt Digital India progress: Nasscom

The National Association of Software services Companies (Nasscom), the apex association of information technology companies, has proposed to form an empowered group to address policy issues impacting the ITeS and the e-commerce segments, such as the proposed goods and services tax (GST).

According to Nasscom, once the GST laws come into effect in its present form, the government's entire Digital India programme would halt.

Nasscom plans to write to the prime minister's office, the finance ministry and the department of information technology to set up a group, with stakeholders across sectors and the government.

While the objectives and priorities set out by the government are good, the various policies are not in consonance with the goal of Digital India, Nasscom president R Chandrashekhar said.

''We find some of these policies are pulling in the opposite direction. There are things being attempted on the one hand and roadblocks coming up in other areas,'' Business Standard quoted him as saying.

He pointed out GST as one instance. It was intended to make life simpler and make the whole regulatory environment easier, but the opposite may happen with the laws acting against the objectives at least in the services sector, particularly IT.

''Whether its things like registration, compliance or filing of returns, it does not take into account the fact that if you are providing an IT service, you can provide it all across India. Today, you can do it with a single registration, whereas in the new framework, you will actually need as many as 100 registrations across all the states and then the returns will also be filed across different states and jurisdictions,'' he said.

Chandrashekhar said in e-commerce, different states have been coming up with measures of taxation which end by imposing a higher tax on e-commerce, pulling the sector in the opposite direction of Digital India.

For instance, e-commerce entities are not allowed to offer discounts; physical stores may. Then, there are instances where a company has been taken to task for actions which have happened on the e-commerce platform when the company only acted as an intermediary.

For instance, the Nasscom president said, if you are a cab company physically and one of your drivers performs an act which is criminal, the driver is arrested and action is taken. But, if you happen to be doing it electronically, the platform provider and their office-bearers are held criminally accountable.

"All of these examples show inconsistency in the way the policy across the system is functioning, at cross-purposes with the objective of Digital India,'' he added.

The Central GST (CGST) will be framed based on the model GST law. The states will draft their own state GST (SGST) based on the draft model law incorporating various state-based exemptions as required. Release of the Model GST law with almost all the states supporting it is a significant step in the process of GST implementation and is expected to facilitate clearance of long pending Constitutional Amendment Bill in the Rajya Sabha.

As per the provisions of the Model GST law, the taxable event is 'supply' of goods and/ or services, with central GST/ state GST/ Integrated GST normally being payable by the supplier on a forward charge basis.

In certain cases, liability to discharge GST is expected to be on the recipient of goods / services, under a reverse charge mechanism. Additionally, the law also provides for a tax deduction at source and tax collection at source mechanism under specified circumstances.

For the purpose of levy of GST, the term 'supply' is wide in its import to include all forms of supply of goods and services such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

'Supply' has also been defined to include importation of service, where the same is not for a consideration and whether or not it is in the course or furtherance of business.

Stock transfer of finished goods in the course of business (including possibly interbranch supply of services) also appear to be set to be taxed as a 'supply' under GST. The provisions are not fully clear with respect to cross border supply of services being granted import-export status.

Question arises whether free supplies qualify as 'supply' for the purpose of levy of GST?

The term 'supply' has been defined to also include certain specified categories of supplies made without any consideration. Such specified categories include supply of goods and/ or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.

The concept of taxation of supplies without consideration, including self-supply of services requires detailed evaluation and deliberation.

Stressing the need to form a suitably empowered group to identify these pain points and remove such blocks, he said if that is not done, the move towards Digital India will not happen smoothly or be actually halted.

Nasscom had also written in June 2014 to the government about the need to form such a group, while sending its Budget recommendations.