New Delhi: should states tax e-commerce firms? are online retailers like Flipkart and Snapdeal providing a service or should they pay taxes for the products that are being sold through their platforms? the online industry fears new taxation rules may end up spoiling the e-commerce party.
At a time once there's lack of clarity on the taxes that e-commerce corporations have to be compelled to pay, the reserve bank of india in its recent report released this week on State finances has said the rapidly growing e-commerce sector might contribute to the states own revenue efforts. run says taxing e-commerce is "an opportunity and a challenge for states".
Some states like Kerala and karnataka have already taken online corporations to court over the issue of tax evasion. rbi now feels some pending issues need to be resolved urgently to bring about clarity.
So what are the problem areas? rbi cites two main problems - whether - e-business is to be treated as market place or inventory model of online business? And second, what should be treated as point of sale?
Large e-tailers are of the view they are simply providing a web marketplace to each consumers and sellers. they're just commission agents that host third-party merchants on their websites where customers buy product on the sites from these merchants.
So taxes like VAT (Value added tax) should be paid by the supplier not by the online platforms that should simply pay a service tax on the commission they charge.
But run says some state governments are of the view that these online platforms are inventory-based models as many of the online traders set up warehouses and store product before any sale has been transacted. Hence, they contend that these online retailers are liable for tax on the sales of products done by them.
On the issue of the point of sale, rbi says there is 'considerable ambiguity in respect of transactions through e-retailers as to where the sale has occurred and hence in the incidence of tax." this could lead to a dual tax demand, both at the point of origin and destination.
Tax rates and rules dissent wide across states. additionally the VAT Acts and Central sales tax Act, 1956 predate online retail activities. As a result, states are looking at different ways of bringing the online} corporations under the tax net.
So far the govt has stayed away from regulating the e-commerce sector. but countries around the world are grappling with issues of taxing e-commerce firms.