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Flipkart has sued the Uttarakhand Government for levying a 10% entry tax on ecommerce goods (pdf, Hindi) being purchased in that state, via it’s company Ekart. In a boilerplate statement mailed to MediaNama, Flipkart said that:

“The move by the Uttarakhand government imposing 10% additional tax will negatively impact lakhs of consumers in the state who rely on e-commerce. This additional tax is on top of the tax already paid on such goods by the sellers in the state from where the goods have been dispatched. This will make all the products 10% more expensive for the customers in Uttarakhand for whom e-commerce is the only way to get access to millions of affordable products in one place at the convenience of delivery at their doorsteps. We believe this move is anti-consumer and against the public interest. We are pro-actively engaging with all the stakeholders to build a consensus and urge the state government to revoke the additional tax in the interest of the consumers and public at large.”

Flipkart hasn’t shared a copy of the petition with MediaNama, and the company hasn’t responded to questions regarding how exactly this tax was being levied (were goods being held up? How were government officials identifying ecommerce goods?). The Economic Times doesn’t have much information from the petition, which it claims to have reviewed.

Protects sellers, hurts consumers

Such an approach from the government reduces competition between sellers from different states, and while it protects local sellers, it hurts consumers: either they are forced to pay extra, as compared to the rest of the country, or it reduces the propensity of merchants to provide goods to consumers in that state. The biggest advantages of ecommerce is that people no longer have to travel to other cities to purchase the goods they want to buy, and they have access to a larger variety of goods.

In terms of policy and taxation, India really ought to consider a “single digital market” approach, so that the same rules and laws apply to all sellers and buyers online, instead of different rules applying to different states. The current situation goes against the governments “ease of doing business” narrative.

On Flipkart taking the legal route

This move from Flipkart is indicative of two things: firstly, the Uttarakhand Government doesn’t look like it is going to change its decision to levy the tax, which the IAMAI had reasoned as being unconstitutional. Secondly, Flipkart wants to avoid this setting a precedence, and this spreading across the country. The Economic Times report states that “Maharashtra, Bihar and Karnataka already have an entry tax on ecommerce purchases and almost half a dozen states are in various stages of imposing similar taxes.” A ruling in this case should address this issue once and for all, even though the legal process might take time. Governments (read: bureaucrats) are stubborn, and while the case has been filed in the High Court of Uttarakhand, expect that government to take this to the Supreme Court of India.

Remember that Flipkart also took the legal recourse in case of consumer fraud, here. More of this from ecommerce companies should help reduce instances of consumers trying to defraud ecommerce companies, though addressing fraud from merchants is also important. As intermediaries, Flipkart has responsibility to both merchants and consumers, and if doesn’t address these issues, it is setting things up for being held liable for goods being sold via its platform: intermediary liability. More on that here.

There are a number of regulatory issues that e-commerce companies face: we have a list shared by Snapdeal’s Ashish Chandra, here.