During the late 2000s, one of the prominent policy makers of India joked that the reason IT Industry grew in India was because Govt. was not aware what was happening. And by the time it understood the dynamics of the market, the industry had matured adequately.
Sometimes, ignorance is a bliss.
But unfortunately for ecommerce industry, the ignorance has vanished a bit early. After UP, Uttarakhand, Gujarat and Assam, it is the turn of India’s second largest state, Madhya Pradesh to impose ecommerce tax, and potentially kill the booming industry which can transform so many lives.
Interestingly, there is no provision to tax ecommerce shipments in the state; but in order to create a ‘level playing field’ (or rather appease a subset of voters), politicians in MP will amend a law and pass a bill to impose this special 6% tax.
Madhya Pradesh Finance Minister Jayant Malaiya said, “We would bring the e-commerce firm under tax regime and impose six percent levy by bringing a bill to amend in the monsoon session, which is going to be start from tomorrow,”
As per reports, MP will impose this special tax on every shipment which arrives in the state, be it from India or outside India. MP Govt. plans to generate an additional Rs 300 crore via this tax.
The Rationale Behind Ecommerce Tax
The Minister was actually transparent, and quite frank on the logic behind this special tax. He said, “The business of e-commerce companies is increasing day by day and it is affecting the traditional shopkeepers, who pay us entry tax along with other levies.”
It seems that MP Govt. is literally comparing a brick and mortar shop with an ecommerce portal, even if that portal is headquartered in a far off location, and the end-user is just using the site to order a product.
He added, “So, we have decided to bring e-commerce under the gambit of tax regime, so that there should be equal collection from both channels – traditional brick & mortar shops and e-commerce trade.”
Will Ecommerce Portals Strike Back?
After Gujarat imposed special ecommerce tax to benefit local traders, both Amazon and Flipkart moved to court against this decision.
The move by UP Govt. is also being condemned and criticized by ecommerce observers, as they are actually impounding and seizing all online orders above Rs 5000.
Uttarakhand have also imposed a special 10% tax on all ecommerce purchases. Besides Gujarat and MP, Rajasthan may also impose such a tax for creating ‘level playing ground’.
Although Flipkart has already started forming an ecommerce lobby to fight such anti-digital moves by local governments, which is harming the industry, much is still required to regulate the industry in a positive manner.
As per IAMAI and Assocham, passing of GST bill can be a savior of this industry, as it will form a uniform code of tax structure across India.
We will keep you updated as more information comes in.
