State governments to levy tax on ecommerce

Everyone wants a share of the rapidly growing ecommerce industry. So it isn’t a surprise that the Indian government wants to ride on the rising wave as well. Besides, iIt’s evident that a lot more clarity on e-commerce tax is required. Amazon had run into trouble with the tax authorities a couple of months back, and since then the e-commerce tax laws have been a hot topic of discussion.

Last week in New Delhi, a meeting was held for the empowered committee of state finance ministers. Here it was decided that a committee of state and Union government officials would look into the issue of how VAT, sales tax etc. should be levied on e-commerce. “The committee will look at how such transactions can be taxed under the existing laws. Other options like amending the Central Sales Tax Act will also be explored,” said an official from one state. Another official from a different sate added that the committee would be required to recommend ways to tax e-commerce, “States have ben deliberating how to plug revenue losses for a few months, but it was decided in the 11 November meeting to go ahead and set up a committee to look into the issue.”

Karnataka government had already taken the lead to begin amending the VAT act last month, now it is up to the rest to make amendments. This would not only help the government collect revenue, but also shed some light on the tax laws for the benefit of the e-commerce players.

Satya Poddar from EY (former Ernst and Young) said that states would also have to figure out how cash on delivery transactions would be treated, and whether marketplaces, though they follow the marketplace model and do not directly involve themselves in buying and selling, would be treated as facilitators or vendors.