Digital platforms for services such as carpentry, plumbing and cleaning face a goods and services tax (GST) problem that the GST Council should address. The aggregate value of the service rendered via their platform is taxed at 18%, as if these platforms were providing the service, and were clearly above the turnover threshold for paying the tax. What these digital platforms do is to connect customers with verified service providers such as plumbers, cleaners and carpenters and standardise fees. The aggregating platforms should and do pay GST on the fee that they charge for providing the service of organising the online market place, labelled fulfilment. This component, of course, is eligible for input tax credit.
There is no reason why those service providers who operate through e-commerce should automatically be assumed to be above the tax-payment threshold. Most providers of relatively low-value, handyman kind of services would have annual revenues far below the threshold of Rs 20 lakh. The only effect of mandatorily taxing their services would be to force them out of the organised sector and push them back into the grey zone of the informal sector. The differential tax treatment that renders services delivered via online platforms un-competitive must go. GST is supposed to draw swathes of the informal sector into the formal universe. The need is to let online platforms grow to widen the tax base.
GST Council should also do away with mandating e-commerce companies to collect a 1% tax at source (TCS) from the sales on their platforms. Instead, these companies can supply detailed information about every sale that takes place on their platform, and the data can be matched with the tax returns of those selling goods or providing services via the platform.