VAT troubled e-commerce giants Amazon and Flipkart looking Telangana as an alternate

Business Standard - article snapshotTelangana industries minister Jupally Krishna Rao assures 100% transparency and 15 days requisite permission will be given to setup industry in their state, giving competition to neighboring states which are lagging behind in new age business law and tax reforms.

Telangana, India’s youngest state, is slowly becoming the go-to state in the South for big businesses. In attracting investments from industry majors, the state is giving tough competition to its neighbours Andhra Pradesh and Karnataka.

In the past year, Telangana has become the favourite of major e-commerce, retail and aviation companies. While Amazon has one of its largest fulfilment centres in the state and is planning to open another, Flipkart has decided to set up its largest warehouse in Hyderabad. In its first major investment in India, Swedish furniture major IKEA has bought 13 acres near Hyderabad.

US aviation giant Boeing will set up a defence plant in the state, in association with the Tata group. This will be the biggest investment in defence sector in the country so far.

Speaking to Business Standard, Telangana industries minister Jupally Krishna Rao said: “We assure 100 per cent transparency to industry. Also, any sector trying to set up in our state is assured that all requisite permissions will be given in 15 days.”

The state also had abundant government land, which makes it easier to deal with businesses exploring new geographies, Rao said. “Also, our taxation policies are streamlined and transparent, making us an ideal destination for investments.”

On its part, India Inc has witnessed a fresh approach. “The new government realised bringing investment would help it get resources to work on other social initiatives. The government is giving an earnest push to the manufacturing sector, getting approvals for projects has become much easier and a start-up culture is being encouraged. Telangana could soon be the next big hub in southern India,” said Vanitha Datla, chairperson of the Confederation of Indian Industry, Telangana.

She added the state government had promised if projects coming to the state were good, it would either match or provide better taxation policies compared to other states.

Recently, e-commerce giants such as Amazon and Flipkart faced a number of taxation issues in Karnataka. The Karnataka tax department pulled up Amazon for allowing sellers to register fulfilment centres as additional place of business. This led to the state cancelling the licences of many small merchants registered on Amazon.

“With respect to Karnataka, we have always maintained the situation is one in which laws have not kept pace with the new-age online business models that enable a faster, convenient and nationwide access to customers for sellers, especially small and medium businesses, at significantly low costs. We continue to work with the state government and are optimistic about a resolution,” said an Amazon spokesperson.

Amazon has also been demanding exemption on value-added tax (VAT) payment, saying its fulfilment centre only stocks, packs and dispatches products; it doesn’t do business directly. As such, it wants the government to collect VAT from sellers.

Amazon claims the Telangana government has been providing support. “Telangana has been home to our IT operations for a while. In the past year, the state government’s support and the ease of doing business has encouraged us to make further significant investments. Additionally, we have a huge seller and a customer base in the state,” the Amazon spokesperson said.

Flipkart is also seeking clarity on e-commerce-related taxation and VAT issues in Karnataka and this has been cited as the main reason why the company has set up its largest fulfilment centre in Telangana.

Experts say Karnataka’s loss is Telangana gain. “Every company that has to grow in India has to have a hub in the South. Earlier, Karnataka was the favoured destination. But now, the state is unclear on a lot of policies and that is creating a problem for industry. Issues related to VAT have caused major friction between e-commerce companies and the state. Telangana is earning major brownie points on that front,” said Deepak Dhamija, co-founder of Aristotle Consultancy Pvt Ltd.

Source – Business Standard

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