The Current Government is planning to roll out the Goods And Services Tax (GST) soon, which Industrialists all around the country are awaiting with baited breath. The backdrop to the proposed introduction of this tax is the fact that India has no tax laws in place that will regulate the eCommerce Industry.
Therefore, the imposition of tax is done on the basis of the interpretation of local taxation levies in different states. Hence, the introduction of the GST will truly benefit the booming eCommerce sector in the country. In the absence of a suitable legislation, it is being declared that businesses are suffering due to various interpretations that vary from state to state.
This issue recently rose to the surface, when the Karnataka State tax authorities raised concerns about tax evasion by Amazon India. The questions that were raised were that why no VAT was being paid by Amazon and its sellers, who stock their goods at Amazon’s warehouse in the outskirts of the city.
Amazon does not sell directly, and offers only a platform for buyers as well as sellers for their transactions. The sellers offer Amazon a commission for offering them a marketplace to sell their goods. Thus, Amazon is not the direct seller of the goods and therefore, it has claimed that it does not come under the purview of VAT or Sales Tax, and it is liable for only service tax under the current tax regime.
At the same time, the sellers who stocked their goods at the Amazon warehouse by designating it as an additional place of business had their licenses canceled by the state authorities, who said that it was a contravention of the state’s VAT rules. The state tax authorities also ordered Amazon to discontinue selling some of the products that were previously stocked by these sellers (numbering around 100) i.e. those who were supplying the products to Amazon’s warehouse.
Consequent to this decision, the company had no choice but to cancel many order that were received and bear the subsequent losses. Now that the eCommerce industry has taken root in India, the ground situation is that it does not have any eCommerce laws in place. Consequences have arisen and the current standoff is due to the differences in interpretation of the vague laws by Amazon and the state tax authorities.
Now given the ground situation, the only option for some eCommerce operators is to shut their warehouses in states where such issues crop up. This move by the state authorities is being viewed as regressive by many and if corrective measures like the GST are not implemented soon, it can deepen the stand off between the opposing sides and jeopardize the future of the eCommerce industry in the country.
Thus, eCommerce companies will not need a warehouse in every state, but can have a large warehouse at a strategic location that is capable of fulfilling the demand of several states and minimize the costs.
Hence, by easing regulatory norms, eCommerce companies can stand to improve their profits by over 20 percent by a cost reduction of a mere 2 percent. Therefore, this move will also position the country as an industry-friendly destination and will attract more investments from foreign countries. The eventual outcome from the implementation of the GST will be additional employment opportunities, making it a win-win situation for both, the industry as well as the economy.
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Shivi Rao is a content marketer with Krish. She has worked in various industries spanning technology, science, rural marketing, startups & unicorns, eCommerce business, and digital marketing, believing that content is the foundation to facilitate the visibility of any organization and ensuring her words do the same. In her free time, you can either find her lifting weights in the gym or feeding the strays.
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