The government is likely to issue a clarification to end the confusion over ecommerce companies that operate marketplaces, so that states do not impose taxes on them. Companies that operate such platforms these include Flipkart, Amazon India and Snapdeal, should not face the same taxes as brick and mortar retailers, a senior government official told ET. “Only the buyer and the seller have to be taxed,” he said. “The ecommerce company is not required to pay as such since it is only providing a platform for the transaction.”
The Department of Industrial Policy and Promotion (DIPP) has received inputs on framing ecommerce guidelines from nearly all states and is drafting a policy that will define the marketplace model to leave no room for misinterpretation, he said. This clarification became critical after Karnataka proposed tax deducted at source (TDS) of 1% as a value added levy on payments made to sellers by ecommerce companies. The concern was that this could encourage other states to imitate a move that could distort the tax structure and increase compliance costs, thus hobbling the rapidly growing industry. Ecommerce companies that have an inventory-based model may not be able to take advantage of the marketplace definition.
“We are trying to work out what to do with companies which hold inventory,” the official said. “The marketplace has to be a neutral ground which does not promote only one particular product.” DIPP is also working on rules to allow manufacturing companies to sell goods online to give a push to the sector, a key employment generator. Ecommerce and traditional retail companies have been fretting over the hazy rules on foreign direct investment (FDI) and tax rules for the two types of businesses. India does not allow FDI in the business-to-consumer segment of ecommerce, while 100% FDI is allowed in the business-to-business segment. The marketplace model however can be run with 100% foreign investment.
DIPP has held several rounds of discussions with ecommerce and offline retail companies including Snapdeal, Amazon, Flipkart and eBay among others. DIPP’s move is also directed at improving ease of doing business for emerging businesses and deregulate the sector as much as possible. Both ecommerce and traditional retail should have the same advantages, said an expert.
“Government should open FDI in retail per se and not discriminate between online and offline to give everyone a level-playing field,” said Arvind Singhal, chairman and managing director of retail consultant Technopak. “The regulation should not be from the point of view of investment but the way one operates.”
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Source – The Economic Times