Ecommerce in India is hotter than ever. 80 million consumers will shop online this year according to statistics from ASSOCHAM. On an average a 78% increase in online purchases is expected. The online industry is growing every day. It is estimated to be worth $25 billion currently and is likely to reach $100 billion in five years from now.
So is the potential and growth of online retail making state governments envious? One after the other multiple states have imposed entry tax on ecommerce goods. Is this their way of cutting themselves a slice of the ecommerce pie?
It all started with state governments charging VAT on ecommerce. But marketplaces like Amazon and Flipkart stood their ground and fought back. In Kerala the High Court disapproved the government’s attempts to tax ecommerce players. However, state governments have not given up on their taxing strategy. They simply changed the type of tax.
Entry tax is plan B so it seems. State governments have made hasty amendments to their entry tax legislations. Amendments which appear to be vulnerable to challenge on constitutional grounds!
By amending the entry tax legislation, Uttarakhand introduced a simple procedure for entry tax collection on goods purchased online. The notification issued there under mandated an entry tax of 10%.
What the amendment lacks is clarity as to who the taxable person is and a prescribed procedure. The High Court of Uttarakhand granted an interim stay order against entry tax on goods purchased through ecommerce platforms. The court will hear this matter once again in due time. The state government has chosen to ignore the subjudice status of this case and has added further changes to the entry tax legislation. It is believed the new amendment was made to deal with the arguments raised against the old amendment.
In West Bengal the state government has made it compulsory for logistics and courier companies to register themselves, if they make deliveries in West Bengal from other states. These registered companies also need to generate waybills through an official portal once the mandatory entry tax pre-deposit is made. This practice was recently stayed by the Calcutta High Court.
Like Uttarakhand, the Himachal Pradesh government has also similar amendments to its entry tax legislation. It is likely to face the same challenges if it stands by this amendment.
All goods delivered by courier or logistic companies into the state of Bihar are liable to entry tax, according to the state’s amended entry tax legislation. In Assam, the amendment empowers the commissioner to issue notification prescribing the procedure for entry tax payment on goods coming to the state through ecommerce or online purchases. The commissioner must also prescribe the procedure for the collection of entry tax from other persons on behalf of importers.
These amendments are challengeable in both states. The Bihar government has already been challenged in court. The matter is scheduled for a final hearing on 4 May at the Patna High Court.
According to the Gujarat state government, the Act (related to tax on goods in the state) did not cover ecommerce transactions. In March, the state passed a bill to levy entry tax on goods. The bill defined the word importer as anyone who facilitates or brings goods for consumption, use or sale to Gujarat from other parts of the country via online platforms. The importer is liable to acquire tax from the person making the online purchase.
The entry tax act in Rajasthan claims, entry tax will be levied on dealers (i.e. anyone who conducts business over Rs. 1 lakh in any locality in Rajasthan) bringing goods into the state. To put it in simple terms, any product coming into Rajasthan for the purpose of sale is subject to entry tax.
Many have criticized the state government’s tax rules, including Shilpa Gupta, the head of retail at Federation of Indian Chambers of Commerce and Industry (FICCI). She claims we are killing the ecommerce industry instead of supporting it.
Other states charging entry tax on ecommerce goods from other parts of the country include Odisha, Mizoram, Assam and UP.
Whether or not the state level entry tax amendments are legitimate is under the examination of the Supreme Court. The sudden need for entry tax seems to arise solely out of state government’s desire to make short term revenue as the new amendments show no long-term tax policy consideration. Also the fact that most state governments have openly agreed to the introduction of the Goods and Services Tax (GST), by 2017 proves this point. (GST will include entry tax.)
We bet online marketplaces wish there was an ecommerce regulatory body around to help them out!
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