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This is why we need GST: No e-commerce deliveries to Kerala due to sales tax

E-commerce companies including bigger players such as Flipkart, Amazon and Snapdeal have stopped delivering products to Kerala, due to issues with the state’s sales tax department, reports Asianet. If you search the pincode of any address in Kerala, it says “delivery is not available to this pincode for the current item”. eBay sports no such warning, but from what we understand some deliveries have been stuck in transit.

According to the report, the state tax office feels that these e-commerce companies are able to discount their products by around 5% because they don’t pay taxes in the state. In that context, it is worth noting that Amit Agarwal, Vice President and Country Manager, Amazon India had touched upon these issues of taxation in India while talking to Medianama last year. He had said that merchants will like the ‘fulfilled by Amazon’ service as it hides these complexities. However, now that they have stopped delivering to Kerala based on these very same issues, merchants are back to square one again.

Update: Turns out, some orders made for products that were supposed to be fulfilled by Amazon are being sent through Gati. These orders have also been delayed and adding to the confusion, the tracking information for these products are different on Gati and Amazon.

Retailers want GST: As of now retailers need to pay Central Service Tax (CST), Value added tax and also separate tax in the state the item is sold in, for each product. Each of these taxes need to be paid at different centres and though it can be done online, it is not always a convenient process, or one that can be automated according to retailers. This is a big problem for e-commerce companies that operate at a bigger scale and need to sell products across states in India on a daily basis.

Merchants, both online and offline have been demanding the introduction of Goods and Services Tax (GST) that would combine all the above mentioned indirect taxes and reduce the hassle for retailers. GST will also reduce the prices of products as the tax is charged only on the value addition at each stage rather than on the value of the product sold. In a way GST behaves like a super VAT, except it is paid centrally and then distributed to each state. Though GST could be in the range of 15-20%, the final price of the product will supposedly be lower than the current tax regime.

This tax incidentally was proposed back when Vajpayee was in power and has been slowly moving through the bureaucratic channels towards becoming a law. It is worth noting that BJP had mentioned the implementation of GST as one of their objectives in its 2014 election manifesto. The party had claimed that it would build a “robust IT framework” to implement this without mentioning the timeframe.

So why is sales tax department in Kerala the only one to raise this issue? Why aren’t other states making it difficult for e-commerce companies to deliver products to their respective states? We don’t know for sure. It could be due to complaints by offline retailers in Kerala who might have an issue with online retailers not paying these taxes which they are forced to pay. Do note that Kerala government has been in favour of implementing GST, with the state finance minister KM Mani saying that it will provide all support to the Narendra Modi Government for implementing GST. That being the case, this is a temporary hurdle that will exist only till GST is implemented. The question is how long will it take before that happens.

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