Place of supply in cross border E-commerce exports: regulatory framework and compliance

Introduction 

E-commerce (Electronic commerce) is a great way of setting your business into an online store. You need to maintain a high-end profile, create a website, and hire an operating manager. E-commerce has gained massive profit since the pandemic as most businesses shifted to online stores instead of selling in physical stores. While e-commerce has many pros, it has its cons as well. With different taxation and compliant requirements, a business owner ends up paying high taxes and to fulfill other requirements, many low-grade businesses gain less margin. But once you get through the process of taxation, you get to see good results for your business. Your ecommerce store looks verified to the visitors and hence it brings more traffic to your website. The more the visitors, the more the traffic hence, the greater the profit margin. The GST (goods and services tax) on every e-commerce activity has burdened business owners as they are supposed to pay taxes on almost every activity they do to promote their business. Let’s get to know more about what challenges e-commerce exports face with regulatory and framework compliance:

E-commerce Exports and GST Implications

E-commerce has been a great way of opening doors between different states to exchange goods and services since the pandemic. Where Electronic Commerce has been playing a pivotal role in strengthening the economic stability of the country, the goods and services tax is also an important reform of the tax but has been facing some prominent issues as well. These are some of the impacts GST has set on e-commerce of exports:

• Compliance requirements

The fulfilment of compliance requirements for e-commerce business owners has to be the biggest impact GST puts on something. The compliance requirements ask the e-commerce business owner to register their organization and profile for GST, file GST returns, and maintain a proper record of their transaction details. Setting up and fulfilling these requirements places a great burden on business owners, severely affecting those who run low-cost businesses, as they are left with lower margins after complying with taxation requirements.

• Tax rate changes

One of the biggest turn-offs for these digital businesses is the changing rates of taxes over time. If you plan on setting up your e-store, you have to go through several verifications and so does the taxation as well. The more the requirements, the more the taxation. The e-commerce businesses are supposed to give 1% of the turnover of their overall income along with the GST on each product they sell. Hence, it has brought a burden on the owners of e-commerce and the burden doubles for those who sell low-priced items or items that are not too much in demand. Another great turn-off for those who run their e-commerce business is that they are supposed to pay tax on every activity related to their business. If they are advertising anything for the growth and prominence of their business, for the logistics of their business, and for operating their goods, every step asks for a separate GST which in return brings less profit to them than expected. The rates of the tax change with the change in currencies of different countries and that brings a loss to the e-commerce business owners sometimes.

• Impact on business

The goods and services tax has built massive pressure on both small and medium-sized businesses with increased compliance requirements, tax rate changes, and other fulfilment of administrative and financial requirements. While these costs have increased, it has also increased other costs for the business owners which has lessened their profit margin and made it harder for them to compete with the giants. The unexplained costs and taxation have brought a great deduction of money from these businesses and their owners. Where GST is good for the overall stability of economic growth, it can be a hurdle for many business owners at the same time.

Place of Supply for E-Commerce Transactions

While exchanging goods in e-commerce, two locations determine the transaction tax liability under GST. These are:

1. Location of supplier

2. Place of supply

This will be the place where the goods will be received once they are dispatched from the place where they are being manufactured. This is the registered place of the business. However, the rules don’t have to be the same for every business. It may vary from business to business and place to place. The place of supply for the goods is important to be recognized to either send the goods or receive the goods. Moreover, if it fails to recognize or maintain the importance of the place of supply, there are chances of fraud, violation of rules, or loss. For the safety of your products and your payment, you must fulfil the GST for the determination of the place of supply so that the goods can easily be transferred and received at the desired place. Also Read: Place of Supply and E-commerce Transactions: Online Sales and Delivery

Tax Registration and Compliance Requirements for E-Commerce Exporters 

Your business needs registration for multiple requirements. For the profit organisation, you need to address the following concerns: 

• Sole proprietor 
• Partnership 
• Limited liability partnership 
• Limited liability companies 

For the nonprofit organisation, you need to address the following concerns: 

• Trusts
• NGOs
• Welfare societies

These all are the legal forms of business and it’s equally important to address them to protect your business from any unannounced taxation or penalties.  Once you complete your business registration, you must undergo the following taxation:

1. Income tax 
2. General sales tax
3. Services tax
4. Excise duty
5. Import duty

Also Read: A Step-By-Step Guide To GST Registration For E-Commerce Businesses

Customs Formalities for E-Commerce Exports 

If you plan on exporting your products to any other country, they will have to go through the customs clearance process of the country receiving the goods. Once they pass the process, the system delivers them to their final place. The customs clearance process includes: 

• Completion of airway bill
• Completion of invoice 
• Rules are checked if they are violated
• Documentation
• Costing

Here are the steps customs follows when clearing a product for export goods:

1. Inspection of the document
2. Duty, tax, and calculation of the fee
3. Incoterm assessment 
4. Shipment decision; reject, hold, clear

Protecting Intellectual Property Rights In E-Commerce Exports

Protecting rights has proved to be a key role in maintaining the global role and IPR. The business owners receive these rights so that they can use them against any person or organization that sells, copies, or claims their services or products as their own. It includes copyrights, patents, trademarks, and secret data. These rights, when given to business owners who export, have the leverage to increase the prices of their goods and limit access to their goods as well.  These rights when given to business owners have brought a massive impact on the sustainability of their businesses. The business owners have the confidence to run their channels without any copy issues.  Their privacy is kept confidential, and their ideas and innovations are claimed to be protected. Moreover, this way, these small ventures and businesses were seen to evolve and grow more. Many small-scale businesses are seen to grow that started on a very low scale. They emerged and grew bigger by the time.

Conclusion 

The compliance and regulatory framework has had a huge impact on the overall success of setting up e-commerce businesses. It is seen and recorded that since the pandemic many businesses shifted to e-commerce and after the inculcation of the regulatory framework, the management and operation of the businesses grew better.  Exports through e-commerce are a gateway to bringing sustainability to businesses and economic stability as well. Exporting goods through e-commerce has been facing issues of taxation (GST) since it started but you cannot stop or make it an excuse.  It is important to open the doors of stores and bring more business to your country. Bringing more business to the country would give a better prominence to the world, would help in the stability of the e-commerce world, and also help in improving relations with other countries through the exchange of goods. Most importantly, it helps in improving the economic stability of the country as well. Also Read: E-invoice for E-commerce Platforms

FAQs:

Q1. What is the cross-border e-commerce framework of standards?

For a smooth e-commerce exchange process between two states, the customs administration, government agencies, and other stakeholders must follow specific rules.

Q2. What is the advantage of cross-border e-commerce?

When you cross the border to open gates for the business of e-commerce, it helps you elevate your business with a boost in sales and generate good revenue as well. The more cross-border purchases, the greater the business blooms and grows as it fulfills demand on a huge basis. It is therefore recommended to welcome cross-border e-commerce for the sake of the growth of your business and help it bloom. 

Q3. What is an example of cross-border e-commerce?

An example of an e-commerce business is an e-store or website where you fulfill the requirements of the e-commerce platform, run it from your country, and sell it somewhere else. For example, you have an online store in Pakistan, and you are selling your services online in the US. Business categories can be related to: 

• Internet services 
• Apparel
• Food 
• Medication
• Fashion and beauty products 
• Chemicals
• Fishery and poultry 

Q4. What is the purpose of the e-commerce framework?

To sell your services online, you have to welcome e-commerce to your business for selling your services. Additionally, it doesn’t require a physical store. All you need is to set up an online store, a smooth payment process, a shopping cart, and also order management. 

Q5. What is cross-border export?

We call it a cross-border export when businesses exchange goods, services, and capital across borders. When you send goods outside the border to another country, you export those goods. This way, it also helps you furnish the business and helps you grow. 

Q6. What are the 4 areas of e-commerce?

There are four different parts of e-commerce:

• Business to business which is called B2B
• Business to consumer which is called B2C
• Consumer to consumer which is called C2C
• Consumer to Business which is called C2B

Q7. What are the problems with cross-border transactions?

There can be some major issues that come your way when you begin your cross-border e-commerce as tax issues, legal issues, safety of the data, operating management system, security issues, and foremost that is payment issues. You may encounter all these problems while you begin your cross-border e-commerce business. 

Q8. What are the benefits of regulatory compliance?

India has been growing and blooming in terms of its exports and imports because of instilling regulatory compliance in their business strategies. To stabilise the financial and social landscape of any country, regulatory compliance is the main factor to inculcate.  It’s the regulatory compliance that can help your business create a stable environment and help it attract both domestic and international investors. Moreover, it protects your business from unethical practices and services. Regulatory compliance helps promote sustainable development. 

Q9. What is the difference between framework and compliance?

Compliance relates to the lawsuit and the mandatory rules the government sets, whereas a framework consists of rules that help you secure your organization and build customer trust.

Q10. What is the scope of the compliance framework?

It’s important to inculcate a compliance framework in your business. It will also help your business achieve regulatory requirements with the help of business models and governance arrangements. When it comes to what scope a compliance framework holds in a export/import business, it helps gain trust of the customer, helps operate the current system in a systematic way and helps in catering problems that may arise due to non compliance.