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Friday, 15 April 2016, 09:30 Hrs

National Association of Software and Services Companies (NASSCOM) has recently expressed its discontentment on a bill by Government of Gujarat to levy entry tax on consumers for interstate ecommerce transactions. NASSCOM believes that such a move will pose significant commercial challenges for e-commerce and logistics companies and to retailers from outside of Gujarat, selling goods to customers in the state. A similar levy is being enforced in Assam, Odisha, Uttarakhand, Rajasthan and Mizoram and is proposed to be levied in Punjab, Himachal Pradesh, Uttar Pradesh and Madhya Pradesh.

This tax, payable by the consumers, will be collected and deposited by entities that bring specified goods to the state from any other part of the country, for consumption and sale. This levy of entry tax poses significant challenges both commercially and operationally for the ecommerce companies, logistics companies and the outside state sellers selling goods to customers in the state. Sharing his thoughts on the issue, Mr. R. Chandrashekhar, President, NASSCOM said, “The e-commerce sector aspires to unify the country digitally into a single entity. Providing un-restricted cross border access to sellers as well as buyers is the prerogative of the government and is an important driver towards creating an ease of doing business. Such tax structures will lead to additional burden on SME traders, enhanced litigation, and also reduce business efficiencies. It will also restrict choice of the customer.”

The entry tax levy is flawed for the following reasons

1. This is akin to introducing trade barriers to free interstate trade thereby restricting market access within the country.

2. The growth of manufacturing in India cannot be contemplated without the growth in the SMEs across the country.  The eCommerce sector has offered seamless access to the SMEs across the country to sell goods to customers notwithstanding their location. Discouraging inter-state sales by imposition of the proposed special tax would be akin to going backwards and discouraging SMEs to manufacture.

3. The proposed levy will have a short life in light of the impending GST reform.  For collecting and depositing the tax, the deemed tax payer would be required to significantly re-vamp the IT systems to track the tax charged on inter-state sale of goods to Gujarat and determine the differential tax which has to be paid in the form of entry tax. Disputes on classification are also inevitable and considering huge number of Sellers operating through marketplaces. The proposal will therefore be burdening the Service industry with sale of goods related compliances, administrative costs and unwarranted disputes for a short term making it completely infeasible. Cost of complying with this entry tax for thousands of sellers outside the state will be much higher than the expected outcome.

Such moves will fragment the India market, severely jeopardizing business case for many entrepreneurs both manufacturers and service providers, and is not in the interest of consumers. The levy therefore is not aligned with the reform and growth initiatives like Digital India , Make in India and Start-up India – Standup India.”