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Ecommerce tax is spreading like a virus


Madhya Pradesh is the latest state to impose a 6% entry tax on goods bought via ecommerce marketplaces, reports ANI. It’s worth noting that in February, the state government had announced plans to introduce such a tax as a part of its budget plans that month. Jayant Malaiya, finance minister for the state, said the this was done as a response to the “losses incurred due to proliferation of etailers such as Flipkart and Amazon”. Madhya Pradesh has now joined seven other states – Uttar Pradesh, Assam, Odisha, Uttarakhand, Rajasthan, West Bengal, and Mizoram – which imposed the tax citing loss of revenues.

Earlier in the month, Amazon challenged the ecommerce tax in Gujarat and filed a case in the high court against the state and the commissioner of tax. Flipkart has sued the Uttarakhand and Gujarat government over the entry taxes into the respective states. 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 find it easier to tax the marketplace or delivery entity instead of the seller.

To address this, states are resorting to taxing the ecommerce marketplace, which is technically only an intermediary. We expect more and more states to take cue from this, and start imposing the ecommerce tax.

The right approach to taxes

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”

Nikhil adds: Ecommerce poses a particularly unique challenge for states. It allows company to set up operators in other states and deliver anywhere in the country via courier companies: the Internet allows unification of the country as a market, and it’s difficult to ascertain where the sale took place: in the state where the ecommerce company operates from, where the seller (merchant) operates from, where its servers are hosted, or where the buyer resides. The uniqueness of Ecommerce is that it allows buyers to get goods delivered everywhere, and thus gives people in smaller towns and cities to get access to a larger shelf of products, and often at lower prices. What such taxes do is prevent ecommerce marketplaces from delivering to these states, and thus deprive buyers of products.

Other tax disputes

– 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.

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