Internet use in India has grown massively – mostly through the availability and adoption of mobile, with a reported 300 million people now online. In tandem, e-commerce is also experiencing major growth with home grown companies like Flipkart as well as international e-commerce outfits like Amazon, all generating profit from the newly internet enabled Indian consumer.
However, with commerce comes new levels of complexity when it comes to tax and VAT. Here Rajeev Agarwal Desai Haribhakti & Co. Partner International Tax & Regulatory (Independent member firm of Baker Tilly India) explains the key requirements that e-tailers need to consider when trading in one of the world’s biggest markets.
There has been so much euphoria with regard to Indian e-commerce story – its on track to become the world’s fastest growing e-commerce market. This growth is being driven by robust investment activity by VCs, angel investors and the rapid increase in internet users – which has grown from 50 million in 2007 to a reported 300 million in 2014. According to Morgan Stanley, size of the Indian internet market is expected to rise from $11 billion in 2013 to $137 billion by 2020 and market capitalization of these internet businesses could touch $160-200 billion from the $4 billion at present. A significant number of web sites, such as, Amazon, Flipkart, Snapdeal, eBay, etc, are engaged in e-commerce activities in India.
With the increase in e-commerce transactions, the e-trailer as well as the Government, within the ambit of the existing revenue laws, is finding it difficult to meet the requirements of newer kind of challenges. Even as taxation of e-commerce continues to be a vexed issue, several State Government have told the Federal Government that firms like Flipkart, Amazon, Snapdeal, ebay etc need to be treated like conventional retailers and be held liable to pay tax on the sales taking place through their platforms, without disadvantaging states where the end-consumer is located.
The main argument around the issue is that conventional retailers can’t be deprived of a level-playing field, whereby either e-tailers must set up warehouses in their states for sales to local consumers and pay VAT or pay a higher tax on sales to their consumers from warehouses in other states. The e-trailer stance there is only a marketplace model liable to only service tax was earlier contested by one of the State which demanded VAT on online sales by Amazon in the state.
Here are some key requirements that mobile and e-commerce companies should look into:
- Levy of VAT is a State matter. Situs of sale, generally, depends in a State from where movement of goods commences. If goods move in the pursuance to customer’s order, and if the movement of goods terminates in some other State, it will be inter-State sale; and if the movement terminates in that State itself, it will be considered as a local (intra-State) sale. The principal as well as agent will inform to their respective appropriate authorities about their agreement and warehousing of goods. Necessary registration will require to be obtained from the Authorities by e-trailer companies as C&F agent.
- If e-trailer companies are providing a platform, they are required to obtain service tax registration and pay service tax on the services provided to the Seller.
- Invoice is raised in the name of the Seller yet the e-trailer company handles the goods as well as proceeds; thus, prima facie, e-trailer companies will be considered as C&F Agent of the Seller. Accordingly, the Seller will be liable to obtain VAT registration in that State and pay VAT/CST as per the provisions of such State VAT Act. Seller will require to add the warehouse provided by e-trailer companies as “additional place of business in the VAT registration certificate”.
- If the goods are transferred by the Seller from some other State to the warehouse of the e-trailer company, such transfer will take place on the strength of statutory forms issued by Seller.
- The present VAT law, however, requires statutory forms under Central Sales Tax Act for availing beneficial rates and the marketplace model of business of various e-trailer companies has been subjected to closer scrutiny with the intention of making the marketplace accountable for the transactions.
Rajeev Agarwal
Partner International Tax & Regulatory
Desai Haribhakti & Co
The Federal & State Government are working on to introduce uniform indirect tax regime “Goods & Service Tax” in India. We are of view that issues of market place taxation claimed by consuming states as a result of e-trailing would be addressed by the proposed GST.
All supplies of goods, including stock transfer, will be taxed and the credit chain will flow continuously across states. Till the GST is implemented and a complete credit chain is set, the state governments should support e commerce by providing the necessary relief in their VAT laws.
