VAT Department on Tax Evasion by E-Commerce
Companies
India is seeing drastic change in
shopping habits of the people, the result of which is the growth of E-commerce
companies in India for the past 5 years. The E-commerce giants like Flipkart,
Snapdeal, Amazon, Myntra etc and various small start-ups are showing great
numbers in their sales figures. People are getting more and more attracted
towards online shopping and use of Shopping apps has just added more spice to
the E-commerce Industry.
The Selling rates which are provided by these online portals are Un-matchable by
our conventional retailers and stores. There are various reasons which contribute
to such a rate difference but in some cases the difference is just what these
company shows but in reality there aren't.
With the change in technologies and business methods there are always some
legal glitch (or we can say a lot of) which arises to these new Industries. The
most important problem which are arising now a days and for which many online
retailers and manufacturer are asking question on is of "Tax Impact". What taxes
are applicable on the industry whether it is VAT or CST or Service Tax.
The Impact of Tax on these companies depend upon the model on which they
work.There are various models in which these companies are working, we have
prepared a small list below (the list is not exhaustive):
Produce the goods, display it in the E-commerce market place and
sell it to the final consumer.
Purchase the goods from Manufacturer and Wholesaler, display it in
the E-commerce Market place and sell it to the final consumer.
Prepare a group of Retailers, display there product in E-commerce
Market place and Sell it to the final Consumer.
Prepare a group of Retailers, collect there goods in E-commerce
Warehouse, Display the products in the E-commerce marketplace and
Sell it the Final consumer.
In all the above 4 examples, an E-commerce can act as the Seller, Warehouse or
Just a Facilitator for the Buyer and Seller.Now the final Sale receipt is collected
by these E-commerce companies and the same is distributed to the Seller (if any)
and to the other intermediaries. These various steps makes it difficult to know
who the actual seller is, who are the service providers and on what amount each
should pay there share of taxes. This is the reason why there are so many
problems. There are various rules in both Service Tax and Sales Tax which helps
to calculate the tax but at the same time there are also various ambiguities, loop
holes and other differences of opinions which doesn't allow correct collection and
payment of Tax.
Recently Uttar Pradesh VAT Department had issued a circular, in which
Employees of State VAT Department are instructed to point out Online retailers
and warehouses and get them registered with the department. The circular is also
not very clear but provides an indication to the E-commerce industry to get ready
for correct taxation mechanism. Below is the copy of the circular as provided by
the department: