Amazon India is challenging the state level “Ecommerce Tax” being imposed on ecommerce companies in Gujarat, reports the Economic Times. A case has been filed in the Gujarat High Court by Amazon Seller Services Private Limited against the State of Gujarat and Commissioner of Income Tax. A copy of the last order, issued yesterday, is here: C_SCA_9121_2016_o_1. We’ve contacted Amazon for comments and they’ve said they’ll get back to us on this. We’ll update when we hear more.
The Ecommerce Tax is a tax imposed on ecommerce marketplaces: since the source of the goods may or may not be in that state, the state into which the goods are being imported believes that it is losing sales tax revenue, and imposes a tax on goods being brought into the state. It is similar to the Equalization Levy being imposed on Indian entities purchasing services such as advertising, hosting and corporate email from abroad. For the ecommerce marketplace, which is a facilitator and an intermediary, this tax, if applicable, should be imposed on the merchant directly, and not on the marketplace. However, given the millions of transactions taking place via ecommerce marketplaces, states are find it easier to tax the marketplace or delivery entity instead of the seller.
According to ET, the ecommerce tax has been levied against Uttar Pradesh, Assam, Odisha, Uttarakhand, Rajasthan, West Bengal, and Mizoram. It adds that Flipkart has challenged these taxes in Uttarakhand, Gujarat (here) and West Bengal. Note that in three states in India – Delhi, Kerala and Rajasthan – which have a legislation which says that ecommerce companies are not merchants, but aggregators who bring sellers on a platform.
The IAMAI had said earlier this year that the Constitution of India (Article 304) states that authorities cannot discriminate between goods from within or outside the state. There cannot be an ‘unreasonable’ state legislature against movement of goods, but needs the sanction of the Indian President. In the current scenario, IAMAI says that on its face value, this cannot be imposed on consumers without consent from the President.
The Right Approach:
Earlier in September, the Delhi government made it mandatory for all ecommerce companies and platforms to file transaction information by their sellers and traders via their platforms or website, so that the Delhi Government’s Department of Trade and Taxes to identify sellers of goods and services, and ensure that adequate taxes are being paid by the sellers themselves.
It’s worth noting that the Delhi High Court had raised a pertinent question (given that the case was still in court) about how is it that Ecommerce marketplaces are being treated both as ecommerce companies and intermediaries, saying:
“Prima facie, the Union of India/State Governments cannot, on the one hand, for the purpose of tax, treat such sales as retail and on the other hand, for the purposes of investment, not treat the same as retail sale”
Not a New Thing
This challenge faced by Ecommerce marketplaces is not new and not unexpected: Back in 2013, Amazon’s India Country Manager Amit Agarwal had told MediaNama that “…Fulfilment by Amazon in India would have more difficult taxation laws to take care of”, because of “the complexity of moving products across states, taxation, CST, VAT, Octroi”.
Like we’ve said before, one way to address this issue is by looking at India as a Single Digital Market, with the same rules and laws apply to buyers and sellers and buyers online, instead of different rules in different states, which only increase the complexity of doing business. The current approach essentially protects local sellers in a state, and reduces consumer choice. This could increase costs for consumers in the state.
Previous Tax issues
– March 2016: Flipkart sues the Uttarakhand Government over Ecommerce Tax.
– January 2016: Kerala government fines Flipkart, Jabong, Zovi and Myntra Rs 54 crore for tax evasion
– In January 2015: The Kerala commercial taxes department put a fine of up to Rs 54 crore on e-commerce players for evasion of sales tax in 2012-13 and 2013-14. The companies which have been fined include Flipkart, Jabong, Vector e-commerce which has a stake in Myntra.com and Robemall apparels which operates Zovi.com.
– September 2014: Karnataka govt sends license cancellation to merchants selling through Amazon India. source.
– June 2014: The Punjab government too is taking stock of the loss of revenue to the state from online shopping. The Punjab government has asked the websites to furnish details of items they have sold to people living in Punjab. They also plan to ask these companies to set up warehouses in the state so that it can ensure payment of local taxes.
– June 2013: Flipkart decides not to deliver orders higher than Rs 10,000 to UP because of tax reasons.