On one hand, the central government has been introducing reforms for making the process of doing business easy in India, whereas the state governments continue to come up with various taxations affecting the booming e-commerce business in the country. Joining in the footsteps of Gujarat, Assam, Odisha, Bihar, Uttarakhand, Rajasthan and Mizoram, it is now Uttar Pradesh state government which has come up with an entry tax on e-commerce purchases.
In a Cabinet meeting today, Akhilesh Yadav-led UP government passed the proposal to impose 5% additional tax on e-commerce goods as entry tax in the state. The proposal is in response to the continuous pleas made by lakhs of traders and offline retailers who were losing significant business due to online shopping.
A government spokesperson said,
Besides, companies involved in e-commerce were evading tax worth crores of rupees every month as they were not paying anything to the government. Traditional retailers, on the other hand, are already paying an entry tax.
In addition to UP, other states like Madhya Pradesh, Punjab, and Himachal Pradesh are also reportedly discussing to impose entry tax on e-commerce goods in their states. And naturally, e-commerce companies are not happy with it.
Flipkart has already sued Calcutta and Uttarakhand governments for levying additional entry taxes terming it as discriminatory and additional burden. It faced initial success with Calcutta High court putting a stay on state government’s decision to levy additional 1% entry tax.
However, West Bengal government is planning to appeal against this decision in the Supreme court and we may see many more governments follow pursuit if high courts rule in favour of Flipkart and thereby other e-commerce companies.
The National Association of Software and Services Companies (NASSCOM) has also come in support of these companies. According to NASSCOM, the states are creating barriers for market access within India and such tax structures will lead to additional burden on SME (small and medium enterprises) traders.
It also said that with the upcoming GST tax reform, e-commerce companies will have to upgrade their systems to address the new levies, making the entire process highly commercially unviable, as it is for such a short period of time.