India Regulatory Brief: E-Commerce Sector Reacts to Draft GST Bill and Union Cabinet Approves New Mining Policy

E-Commerce Sector Reacts to Draft GST Bill

The government released Draft Model Goods and Services Tax (GST) Laws on June 14 in an attempt to ensure clarity and gauge stakeholder supporter. Following this, new confusion has emerged with regards to the proposed bill’s impact on the e-commerce sector.

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The lobby group, Internet & Mobile Association of India (IAMAI), which represents companies like Flipkart, Snapdeal, and Amazon finds folly with the GST bill’s separate categories of “electronic commerce operators” and “aggregators”. This differentiation is problematic when it comes to calculating liabilities in the e-commerce sector where firms have to work under fast-changing business models. Moreover, the very definition of “operators” and “aggregators” in the draft bill is ambiguous with firms identifying with some aspects of both. This will complicate tax compliance, could lead to misinterpretation by both regulators and companies, and ultimately stifle innovation.

Another problematic provision in the draft GST bill places responsibility on intermediary online platforms (like Facebook, Twitter, YouTube) for the content hosted on their websites. This contradicts the safe-harbor provision of the Information Technology Act that exempts online platforms from being responsible for third-party or user-generated content. The tax collection at source has also been decried by companies like Flipkart as being burdensome on the hundreds of thousands of small and medium (SME) sellers on e-commerce platforms.

Government Approves New Mining Policy

The Union cabinet recently cleared the National Mineral Exploration Policy (NMEP), allowing for the auction of 100 prospective mineral blocks. The government estimates that an extra US$ 314.7 million (Rs 2,116 crore) will be required to implement the new policy across a five year period. This is expected to be achieved through private sector participation in exploration, as well as through state-run agencies like the Geological Survey of India (GSI) and the Mineral Exploration Corporation (MELC).

Data put forth by various agencies indicate that India has about 800,000 sq km of area with the geological potential for mining, but only 10 percent of this has so far been explored. It is hoped that the private sector will augment the government’s current limited capabilities. The bidding process will be competitive and via e-auction to ensure transparency of process.  Regional mineral blocks will be identified by respective state governments for auctioning. Once exploration is completed, the state government will auction the mining lease for that block and the state will receive a royalty pay from the mining lease owner. The mining lease owner will also have to pay a cut from the royalty to the private explorer.

The Ministry of Mines has notified the changes to the National Mineral Exploration Trust. Mining lease owners have already begun contributing to this trust with an amount equivalent to two percent of the royalty paid to the state government.

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Clarifications on the Income Declaration Scheme, 2016

The Central Board of Taxes recently introduced The Income Declaration Scheme (also known as ‘The Scheme’), incorporating it as Chapter IX of the Finance Act, 2016 on June 30. The Scheme allows individuals who have not fully paid taxes to make known their undisclosed income, and pay the tax, surcharge, and penalty (equivalent to 45 percent of the said undisclosed income).

There are several queries regarding the provisions of this scheme, particularly with regards to the security and confidentiality of the taxpayers. However, the tax department has stated that this information will not be shared with law enforcement agencies. The Scheme further clarifies that there will be no enquiry into the sources of income, as the focus will be on the nature of income. The Scheme classifies income into categories such as “movable property”, “immovable property”, “cash”, “gold”, and “jewelry”. This enables the taxpayer to establish the link between the income declared under the Scheme and the claim, if any, made with respect to such undisclosed income in the income returns filed subsequently. No investigation will be made into the seller of an undisclosed asset, if included in some declaration of the Scheme.

The Scheme yields other advantages over disclosing past income in the current year as it helps the taxpayer avoid prosecution under the Income Tax Act. Without the new rule, the concerned party would have to disclose the actual source of the income and substantiate the manner of earning it. The Scheme has also launched ‘Project Insight’, which provides reliable and chronological information about the financial transactions undertaken by taxpayers.

Managing Your Accounting and Bookkeeping in India
In this issue of India Briefing Magazine, we spotlight three issues that financial management teams for India should monitor. Firstly, we examine the new Indian Accounting Standards (Ind-AS) system, which is expected to be a boon for foreign companies in India. We then highlight common filing dates for most companies with operations in India, and lastly examine procedures and regulations for remitting profits from India.

Using India’s Free Trade & Double Tax Agreements
In this issue of India Briefing magazine, we take a look at the bilateral and multilateral trade agreements that India currently has in place and highlight the deals that are still in negotiation. We analyze the country’s double tax agreements, and conclude by discussing how foreign businesses can establish a presence in Singapore to access both the Indian and ASEAN markets.

Passage to India: Selling to India’s Consumer Market In this issue of India Briefing magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures and the advantages they can provide companies at all stages of market entry and expansion.

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