Need to liberalise e-Commerce: Tax Evasion and Business Model major concerns

Even as the pressure mounts on the Centre from various countries to liberalise the e-commerce segment in the country, states on Wednesday flagged several concerns including tax evasion by e-tailers, lack of clarity on the business models of online retailers and jurisdictional issues in a meeting with commerce and industry minister Nirmala Sitharaman.

The meeting, which witnessed participation of industry ministers from across the states, was second such interaction by the commerce and industry minister before the Centre takes a call on the policy for e-commerce retail. The issue of multi-brand retail was also taken up in the meeting.

Policy for multi-brand retail and e-commerce are linked. So both the issues were discussed. Several states raised the issue on evasion of taxes by e-retailers while also the confusion prevailing over the jurisdiction over such companies. If the company is operating on inventory-based model, the states have jurisdiction under Shops and Establishments Act while if it is only market place model, it will come under the Centre due to applicability of the IT Act,.

The interaction assumes importance in light of increased scrutiny of states in the business model of electronic commerce. E-commerce companies have been crying foul following moves like levy of VAT by Karnataka on online sales of Amazon. Earlier, in meeting with the minister online majors like Flipkart and Amazon had raised the taxation issues faced in some states and sought amendment to the existing value added tax (VAT) law, which does not recognise them as a service provider and asks them to pay taxes on the products sold from the warehouse.

What has also lent a sense of urgency to clarify the policy stance is the pressure that India is facing while negotiating Regional Comprehensive Economic Partnership (RCEP) agreement with the 10-member Asean, Japan, China, South Korea, Australia and New Zealand. After Japan floated a paper earlier this year for inclusion of e-commerce in the negotiations, most of the participating members, including the Asean countries, and Australia have supported it.

While e-tailers bat for liberalisation of foreign direct policy regime in the e-commerce business-to-consumer segment, brick and mortar traders have been lobbying against it. The current policy allows 100 per cent FDI in business-to-business (B2B) ecommerce but business-to-consumer (B2C) is closed to foreign investment.

An official from one of the states said on the condition of anonymity that the main concern of states was that e-commerce firms are circumventing multi-brand retail restrictions through the route of online retail. It is therefore imperative that a clear policy of intent is framed for both e-commerce and multi-brand retail trading (MBRT). While there is a general consensus on liberalising the two sectors further, states have asked the Centre to conduct a study on world best practices to help them understand the trade-offs required.

All the states are in agreement over FDI in e-commerce but we have to also look at the cost at which we will be allowing it. This is what is being discussed right now. We have to see what we need to do ” whether you need stricter laws for consumer protection, when will GST be introduced. The state has a responsibility towards consumers and retailers.