The Karnataka government plans to amend the Value Added Tax Act to remove ambiguities surrounding e-commerce and bring its transactions under the tax net. It wants the amendment to come through in the forthcoming winter session of the state legislature.
The government says the amendment will deal with what in e-commerce lingo is called the marketplace model, which most players have in different measure. In this model, e-commerce players offer an online platform that retailers and buyers can use to make transactions; the e-commerce players may also offer logistics and warehousing facilities to the sellers. Amazon in India has only a marketplace model, but the same in Flipkart's case is a small part of its overall operations, because most of the sales are done by the company, though through a different entity.
The players in the marketplace model say that since they do not directly sell goods, VAT should not be applicable to them. But a state finance department official said since companies like Amazon offer their platform and services for a commission, "even commission agents have to pay tax''. Under the existing VAT Act, both dealers and commission agents have to pay tax. The state government's amendment is expected to clarify that e-commerce players will fall under that category.
"The VAT law is very clear. Those who sell on their own or those who sell on behalf of somebody acting as a commission agent are liable to pay taxes. By splitting the business (of selling and facilitating), there is a misuse of law and evasion of tax. Hence we have proposed some amendments to deal with specifics so that there is more clarity on e-commerce activities,'' said commercial taxes commissioner Ajay Seth.
The problem began with Amazon's warehouse in Hoskote that was launched in January. The dealers showed the Amazon warehouse as their additional place of business or branch. The government says this was done to avoid certain taxes.
The government wants all e-commerce firms to pay up, whether they call themselves dealers, aggregators, retailers, facilitators or commission agents. As per the law, tax should be paid at each point of value addition. The government has also asked e-commerce firms, including Amazon, to come up with options to comply with the VAT law.
Tax experts, however, warn that an already complicated tax system should not be further complicated. "The indirect tax regime is complicated enough," said Sandeep Ladda, India technology leader in consulting and audit firm PricewaterhouseCoopers (PwC). "One should make more accountable use of the existing indirect tax framework rather than introduce any new taxes. This is a very high growth sector and one should find means to engage with the stakeholders of this ecosystem so as to enable overall growth, and smoother and easier transaction flow, so as to provide a boost to this promising industry," he added.
For the resource-constrained government, though, the prospects of additional revenue are mouth-watering. "Certainly, we can collect substantial revenue,'' said the commercial taxes commissioner.
GST issue close to resolution: Union minister
Union minister of state for commerce and industry Nirmala Sitaraman on Monday said the Centre is close to resolving the issue of Goods and Services Tax (GST). "The finance minister has held several meetings with chief ministers and state finance ministers. It is likely that a Constitution amendment will be introduced by the end of the year. The issues raised by the states about compensation have been addressed," she said in Bangalore.
Some states, including Karnataka, are worried that GST would mean a revenue loss for them, and have been demanding compensation from the Centre.