The Internet and Mobile Association of India (IAMAI) has stated that Uttarakhand government’s move of imposing 10% tax on all ecommerce purchases is regressive and would need to be borne by customers, although it is incident on courier companies. The industry body said that it finds the amendment unconstitutional and has been imposed to ‘pander to a small section of local traders’. It also requests the government to stop imposing the tax for the benefit of consumers in Uttarakhand. (Notice on the tax, pdf in Hindi)
Consumer should not be punished for using ecommerce facilities
It points out that a 2006 Supreme Court judgment states that entry tax is a compensatory tax whose onus lies on the state to prove that proceeds from the tax are being used to facilitate trade and commerce for those entities on whom the tax is imposed. In the current scenario, the tax is being imposed on the courier companies, who are incorrectly considered the principal in the transaction. The principal is the consumer, and he should not be punished for using ecommerce facilities, IAMAI said in its statement.
Unconstitutional tax law and needs Presidential consent
It then adds 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.
Ecommerce problems in Uttarakhand and Bihar
The IAMAI is not the first to voice its concerns over the tax issue. An October 2015 report from the ET states that ecommerce companies Flipkart, Amazon and Snapdeal nearly stopped delivering products exceeding Rs 5,000 in Uttar Pradesh and Uttarakhand, given the harassment they faced from authorities. In the same report, Snapdeal said that online marketplaces need to be treated as facilitators (as they are in Kerala, Delhi, Rajasthan, West Bengal and Tamil Nadu).
There’s no doubt that extra tax for consumers is regressive (also at a time when the government is encouraging startups and ecommerce companies are tying up with local and government bodies) However, what remains to be seen is the root cause of this trouble: is it the well documented online vs offline struggle or something else. We recall what Ashish Chandra, General Counsel at Snapdeal said in July last year, when asked whether ecommerce was designed to kill the offline retail market, “The intent of ecommerce is not to kill the offline market, but the intent is to give an additional channel of sales to the nation.”
– How ecommerce grew exponentially in 2015, more people now buying online instead of offline.
– A Mary Meeker report from May 2015 stated that 41% of e-commerce in India happened through mobile phones and devices.