The Telangana government is weighing options to levy value-added tax (VAT) on deliveries by ecommerce firms in the state, potentially setting off a fresh taxation wrangles between a state and the fast-growing sector.

In neighbouring Karnataka, global ecommerce giant Amazon is already locked in a tax dispute with local tax authorities after they slapped notices on some 100-odd sellers on the company's electronic marketplace who had listed its warehouse as an additional place of business, saying their actions were deemed to be in contravention of the state VAT laws. About 25 merchants' licences have since been cancelled.
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Officials in Telangana said the thinking behind the move to levy VAT was part of a broader plan to bolster tax revenues and the government will take a decision on the tax mobilisation measures shortly.

One senior official in newly created state's finance ministry said authorities had noticed a sizeable drop in VAT collections over the last few months, which they think could be because of a surge in e-commerce transactions that were evading VAT payments and a fall in brick-and-mortar format store sales. "A proposal is being considered to conduct large scale searches on all the entities associated with e-commerce portals to see if there are any holes that need to be plugged immediately to help raise tax collections," he said.

Confirming the initiatives, B Revathi Rohini, additional commissioner of commercial taxes (enforcement), said the department was analysing whether taxes were paid by all traders doing business across the state. "There is an apprehension that under guise of ecommerce whether the taxes are being evaded and we are checking that. Our concern is if any tax is getting evaded at that level," she told ET.

Saying the Telangana government was also looking at roping in ecommerce companies to discipline the entire transaction process, she said: "They (ecommerce players) may collect taxes less than what is applicable to the commodity, but they will have to pay the amount levied on a particular commodity to the state."

The move, which ecommerce firms believe could adversely affect operations, comes at a time Telangana's neighbour, Chandrababu Naidu-led Andhra Pradesh, is in talks with Amazon to shift its base to his state and is said to have offered it tax incentives.