Even as taxation of e-commerce continues to be a vexed issue, several states have told the Centre that firms like Flipkart, Amazon and Snapdeal need to be treated like conventional retailers and be held liable to pay tax on the sales taking place through their platforms, without disadvantaging states where the end-consumer is located.
Arguing that conventional retailers can’t be deprived of a level-playing field, some states like Kerala have said that either e-tailers must set up warehouses in their states for sales to local consumers and pay VAT or pay a higher tax on sales to their consumers from warehouses in other states.
The e-tailers’ stance theirs is only a marketplace model liable to only service tax was earlier contested by Karnataka which demanded VAT on online sales by Amazon in the state.
While the Centre has called a meeting of all states to discuss the issue on July 15, experts said defining e-tailing from taxation perspective and bringing clarity on “point of sale” would be critical.
Madhya Pradesh, sources said, wants clarity on when an online sale can be deemed to have taken place to avoid disputes. While Kerala wants a tax regime that would not discourage consumers in the state to buy from traditional traders within the state, Karnataka is planning to amend its VAT Act so that e-commerce firms levy VAT on sales on their platforms and pay to the state government, rather than passing the buck to third party merchants.
As per the Central Sales Tax (CST) Act, when goods are exported from one state to a registered dealer in another state and the seller produces documents to prove that, only a 2% CST would apply. Also, a registered dealer would have to pay VAT in his state while selling to end-consumers. In cases where e-tailers sell from their warehouse to the end consumer in another state, the applicable VAT on the item would go to the exporting state. Importing states getting no revenue from such transactions claim tax base erosion.
“We have raised this issue on many platforms. There is a need for a level playing field among ecommerce firms and traditional retailers as the latter cannot compete with e-tailers leading to serious socio-economic consequences,” said a finance department official from Kerala.
Kerala’s finance minister K M Mani had earlier urged union finance minister Arun Jaitley to bring a sharply higher tax burden on “inter-state” sale made by e-tailers to end consumers compared to what is applicable to an interstate sale made by a manufacturer or stockist to a registered dealer in the consuming/importing state. That would need an amendment to the CST Act.
The union government, however, is of the view that the issues of erosion of tax revenue claimed by consuming states as a result of e-tailing would be addressed by the proposed Goods and Service Tax (GST), under which taxes on inter-state supply of goods and services would go to the consuming state. Bipin Sapra, Partner (Indirect Tax), EY said: “GST will bring a uniformity to the taxation of e-commerce among various states in India. All supplies of goods, including stock transfer, will be taxed and the credit chain will flow continuously across states. The present VAT scenario, however, requires Form C for availing beneficial rates of CST and the marketplace model of business of various e-commerce has been subjected to closer scrutiny with the intention of making the marketplace accountable for the transactions. Till the GST is implemented and a complete credit chain is set, the state governments should support e commerce by providing the necessary relief in their VAT laws.”
The RBI has suggested that the country should develop a uniform and easy to implement model across states. Leveraging technology and plugging the gaps in the state laws will lower the compliance cost and monitoring of e-commerce taxation, it said.
An Assocham-PwC study valued e-commerce industry in India at $17 billion in 2014, adding that it is likely to cross $100 billion by 2019. It said around 40 million consumers bought products and services online and this number is expected to touch 65 million by 2015-end.
State of the matter
* States seek level-playing field between e-tailers & conventional retailers
* Kerala says tax regime should not discourage conventional shopping
* MP wants clarity on ‘point of sale’ to avoid disputes
* Karnataka against e-tailers shrugging off VAT liability
* States to discuss taxation with the Centre on July 15
* Govt says GST would protect consuming states’ tax base