According to the industry, a tax on each sale made by online sellers could hurt the industry and increase compliance burdens.

Atom E-commerce Monday, February 17, 2020 - 14:45

E-commerce firms Amazon and Flipkart and industry bodies are asking the government to scale back the 1% tax to be paid by third party resellers on their platforms as announced by the government in the Union Budget. Apart from Amazon and Flipkart, the proposal covers categories like drivers with cab aggregators like Uber and Ola and online food order delivery companies like Swiggy and Zomato.

As per a Reuters report, the US-India Strategic Partnership Forum (USISPF) has requested the government to defer the tax levy to April 2021 giving more time to the e-commerce players. The Federation of Indian Chambers of Commerce and Industry (FICCI) is another body that has sent in a presentation on how the e-commerce sector could be affected by this new levy and create compliance issues for small setups involved in the trade.

“(It) would cause irreparable loss to the entire industry with increased compliance burden... This will also lead to reduced trading activity,” Reuters quotes FICCI as saying.

The Finance Minister has responded in a general way that since the set-off is available under the GST regime, the 1% levy should not be taken as an additional burden. This may be one reason why the argument by those asking for a rollback or deferment insist on the compliance burden rather than the impact due to the tax. Some are saying the delays in the refund process could lead to their working capital funds getting blocked.

The Modi government is trying to explore ways to augment the revenues to the government and though a lot of tax concessions have been announced, the Prime Minister has publicly lamented that the number of people paying income tax in the country are abysmally low compared to the size of the Indian population.

This 1% tax is trying to tap those earning incomes through online businesses and exempts the brick and mortar trade which is already covered under GST. Even in the online business those who have declared income of less than Rs 500,000 the previous year are exempted.

The government is expecting that this tax may add another Rs 30,000 crore to the revenue for the year 2020-21.

This comes at a time when the e-commerce sector has come in for increased scrutiny from the government and some of the regulatory agencies. The issue is ongoing and has reached the courts of law even.

The Minister for Commerce, Piyush Goyal has been vocal on more than one occasion in the recent past, while answering queries from the media on Amazon. He has again reiterated that the present laws in the country governing FDI in online retail allow these entities to only act as agnostic platforms allowing sellers and buyers to meet and transact business. The marketplaces like Amazon and Flipkart (or Walmart) cannot engage in buying and selling on their platforms or to hold inventory etc.