Last year, Jabong, Myntra, Flipkart and Snapdeal had stopped delivery to cities in Kerala as the state’s commercial taxes department had banned their cash on delivery (COD) mode. Despite a brief spell of vacuum in online retailing in the state, the companies had resumed their COD services. Officials, however, insist the ban was still in place.
The state’s commercial taxes department has reportedly said it will make the swoopdown on other online retailers too. “Since the online retail firms do not have brick-and-mortar showrooms, their websites will be treated as showrooms that display products and prices. If the products are sold to local customers, regional taxes will be applicable. All transactions are taxable,” said a senior official.
The sales tax department has said the companies have been penalised for evading taxes for the last two years and that they are looking at other online retailers too. Once found guilty, they will also be fined, tax officials.
As per Kerala’s department of commercial taxes, the online retail falls “under the purview of the definition of business, trade, goods and sales as per the General Clauses Act 1897, Sales of Goods Act 1930, Transfer of Property Act 1882 and Kerala Value Added Tax Act 2003. The state is confident that it will succeed even if the companies approach the court.
Offline traders in Kerala, who have high stakes—considering the state is among the country’s toppers in household monthly per capita expenditure as per annual studies conducted by the National Sample Survey Organisation – have also been complaining of sales tax evasion by online players. “Every day, at least R10 crore worth of products are sold by online retailers. Since they can evade the state’s tax net, they can pass on discounts to the tune of 16% to the customer in the state. They do business at the opportunity cost of offline traders, who also have to cough up on overhead costs like showroom and staff wages,” E Binny, president of the Kerala Samsthana Vyapari Vyvasayai Samithi, told FE.
Besides active consumption behaviour, which makes Kerala more vulnerable to online retail transactions, there is the high literacy rate and high Internet penetration. “In any case, a state, which is dependent on commodity taxes, cannot afford to ignore the tax revenue from online retail transactions,” said Jose Sebastian, faculty, Gulati Institute of Finance and Taxation.
Before Kerala’s taxmen, their counterparts in Karnataka had banned Amazon’s Indian arm from selling electronics and a few other select products from its warehouses situated in the state.
Meanwhile, a Flipkart spokesperson said: “It is our endeavour to be transparent in all our dealings with authorities. We are compliant with the laws of the land in which we operate and will work together with the authorities to ensure that there are no information gaps between us.”
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