1. Flipkart, Snapdeal, others in line of fire as e-trade tax near top of states’ Budget wish list

Flipkart, Snapdeal, others in line of fire as e-trade tax near top of states’ Budget wish list

Online retailers like Flipkart, Snapdeal and Lenskart have come in states’ line of fire with some of them urging Union finance minister ...

By: | New Delhi | Updated: February 12, 2015 9:53 AM
Indian e-commerce, Ecommerce news, Ecommerce India, Ecommerce avenues

A consumer (other than a registered dealer) based in Bhopal, for instance, could buy a laptop from a dealer in his city but stored by Flipkart in its Bengaluru warehouse and the tax revenue goes to Karnataka.

Online retailers like Flipkart, Snapdeal and Lenskart have come in states’ line of fire with some of them urging Union finance minister Arun Jaitley to impose higher taxes to discourage web-based shopping that takes place cutting across state borders.

A host of states, including Madhya Pradesh and Kerala, have found their VAT revenue taking a hit as consumers resort to online purchases, which allow e-tailers to shift the tax payment to states where their warehouses are located.

A consumer (other than a registered dealer) based in Bhopal, for instance, could buy a laptop from a dealer in his city but stored by Flipkart in its Bengaluru warehouse and the tax revenue goes to Karnataka. The states, especially those in which major e-tailers have no warehouses, therefore want the “sale” of goods from e-tailers’ warehouses to be sharply increased, treating them as interstate sales in case the warehouse is not situated in the consumer’s state.

Kerala has demanded that the rate to be hiked to 14.5%, even as VAT on most goods of high currency like mobile phones, computers, clothes and consumer electronics is 5%. The tax increase will require an amendment in the Central Sales Tax Act.

E-tailers achieve tax efficiency by setting up warehouses in a few states where high-demand items like consumer electronics and clothes are taxed less and get them delivered to buyers in another state.

The move by states against online commerce comes against the backdrop of the Karnataka government’s recent demand on Amazon to pay VAT on the goods sold from its warehouse in the state rather than third-party merchants who use Amazon platform to sell goods paying.

Flipkart, snapdeal.com, yebhi.com, myntra.com, jabong.com, firstcry.com and lenskart.com are among the major players in India’s $12-billion e-commerce industry growing at about 34% a year.

Etrade-demand

As per Kerala finance minister KM Mani’s proposal, the tax on “interstate sale” made by e-tailers to end consumers should be sharply higher than what would apply to an interstate sale by a manufacturer or stockist to a registered dealer in the consuming/importing state.

At the moment, e-tailers and conventional dealers who sell to a registered dealer in another state only need to pay 2% central sales tax on the transaction, the proceeds of which go to the exporting state.

End consumers fall in the category of ‘unregistered dealers’ under the CST Act. If the sale made by an online retailer is to an unregistered dealer in the importing state, the applicable tax is the VAT rate applicable on the commodity in the exporting state, which also goes to the exporting state.

Madhya Pradesh finance minister Jayant Malaiya, on the other hand, told Jaitley that the “taxation system should be readjusted to tap the opportunities offered by e-tailing”. Malaiya wants clarity on when a sale can be deemed to have taken place so that tax issues in the highly dynamic industry are settled. Experts too agree that more clarity is required on what constitutes a taxable event in online trading.

States have also made a slew of other tax proposals to Jaitley including exemption from rigorous transfer pricing audits on state power utilities having associates in special economic zones, import tariff protection for locally significant products and personal income tax breaks.

Gujarat finance minister Saurabhbhai Patel told Jaitley that the state has separate companies for power generation, transmission and distribution, which allocate costs among themselves so that surpluses could be reinvested. However, the Income Tax Act insists that transactions within group companies have to be at an arm’s length if some of those units are within special economic zones. This, according to Gujarat, will prevent any reallocation of costs and affect its record of providing uniform power tariff throughout the state. Gujarat therefore wants an exemption to state power utilities from transfer pricing rules in the absence of which it may be constrained to re-bundle all the utilities into a single entity.

  1. V
    Vishwas
    Feb 12, 2015 at 10:37 am
    When end consumers are benefiting from online retailing, there should not be additional burden on e-commerce players which would hamper e-commerce growh in India. Further, all that taxes paid if are utilised properly, there would not be shortall :)... Govts. have to think on these lines.
    Reply
    1. B
      bhalegain
      Feb 12, 2015 at 1:08 pm
      e-commerce has its growth now-a-days. If big players doesn't want online shopping as mentioned in first para, then it is better to go for traditional method of shopping. Why all this hype of internet marketing, buying online, and so on.
      Reply
      1. P
        Pradeep Kumar
        Feb 13, 2015 at 3:18 pm
        Allahabad UP me snapdael ki Frenchay lena hai
        Reply
        1. R
          Raja
          Feb 17, 2015 at 11:13 pm
          To solve this issue, e-commerce companies must collect e-trade tax from consumer and pay equally between exporting state and importing state and rest 2% to Central Govt. e-trade tax must be 1.5 times the average VAT of both the states combined. So if both states levy a VAT of 14.5% then both states levy 10.87 % tax each and Central gets 2%. So total tax to end-user is 23.75%. This will encourage the e-commerce companies to set up distributors/warehouses in all States to reduce the double taxation.
          Reply
          1. V
            Vishwamitra
            Feb 20, 2015 at 5:32 pm
            Governments in India must stop behaving like bandits - always focussed on robbing the consumer. It is pervert to suggest "increasing tax on e-commerce to discourage it". It should in fact be encouraged and wherever possible, the cost of intermediation must be brought down. This is how the manufacturing and trade is made compeive all over the world. Only in India, government try to kill it by making it uncompeive through arbitrary tax burden and poor infrastructure. Tax effects of e-trade across the states will average out, if all states follow reasonable policies and taxation. If states have problem about it, they should talk among themselves as to how to share the tax on such trade and not ask for putting more tax burden on consumer. As it is, much of the tax collected by governments is wasted on unproductive government employees and netas perks and privileges.
            Reply
            1. R
              Ron
              Feb 13, 2015 at 3:31 pm
              If an Indian citizen wants to buy something for his own use anywhere in the country, he/she should be allowed to do so. Various states should not come up with tax terrorism to prevent this. The mantra should be: One India, One Tax.
              Reply
              1. S
                Shriram Mehendale
                Feb 12, 2015 at 10:00 am
                The general logic currently applied in case of to a final consumer say for example of a Television set of LG ,where LG has manufacturing facilities at Maharashtra and Noida in UP. under the cirstances, such will attaract first a central s tax ( LG to Its Dealer ) and when the dealer s it to final customer it would attract VAT of that state. Same logic should apply. OR else inscase of E retailers it could be based on from where the consumer has booked the order.
                Reply
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