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E-commerce marketplaces are liable for VAT since they are commission agents – Karnataka Govt

The Karnataka Government plans to amend the Value Added Tax Act and bring transactions from e-commerce marketplaces under its ambit, reports The Times of India. The government says the amendment will deal with transactions on on e-commerce sites that follow the marketplace model like Flipkart, Amazon India and Snapdeal and it is expected to be passed during the upcoming winter session of the state legislature.

Through this amendment, the government is expected to classify online marketplaces as “commission agents” since they charge a commission from third-party sellers for using their platform and their delivery & warehousing services.

This classification will make them liable to pay VAT to the state government, because as per the Karnataka Value Added Tax Act 2003, direct sellers and those who sell on behalf of others and charge a commission for it, are both liable to pay tax.

Karnataka VAT Act


Amazon India’s tax case

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This development follows Amazon India’s tussle with the Karnataka’s commercial tax department on whether the seller or Amazon should pay the sales tax for all the orders through its fulfillment service.

The tax department had claimed that Amazon should pay the sales tax for all the orders through its fulfillment service, since it believes that Amazon owns these goods for all “practical” purposes. Amazon however had claimed that it is just a service provider and doesn’t own goods at any point of sale, due to which it is not liable to pay this tax.

Following this, Karnataka chief minister Siddaramaiah had directed the commercial tax department to study the the laws and issues related to e-commerce and recommend necessary changes to them.

E-commerce players stopping deliveries in Kerala: Earlier in June this year, several e-commerce companies including bigger players such as Flipkart, Amazon and Snapdeal had also stopped delivering products to Kerala, due to issues with the state’s sales tax department.

Later in the month, Punjab excise and taxation department had also reportedly started a survey to calculate the revenue loss to the state exchequer from online shopping, in July this year. The state government wanted e-commerce platforms to set up warehouses in the state, so that goods sold in Punjab could be taxed.

Interestingly, Minister of State for Commerce and Industry Nirmala Sitharaman had stated that the Goods and Services Tax (GST) will be introduced soon, and a constitutional amendment for the same is expected to be brought before the end of the year.

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Uber service tax conundrum: Earlier this month, the service tax authorities had also alleged that Uber is liable to pay service tax to the government since taxi services is a taxable service and other cab service providers like Meru already pay service tax.

Uber however passed the onus of paying service tax on to the cab service providers and individual cab drivers, since unlike Meru, it is just a technology platform and doesn’t own these taxis or employ drivers on its own.

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