The Delhi Government will soon slap show-cause notices on the three major online retailers in India — Amazon, Flipkart and Snapdeal — for evading Value Added Tax (VAT) in the national Capital. The three leading e-commerce companies have together notched up a turnover of over Rs1,500 crore from business in Delhi in 2014. If the trend is taken into account, their income is bound to multiply in 2015.
Interestingly, Amazon, Flipkart and Snapdeal are charging taxes from customers but they are not paying VAT to the State Government, according to the Trade and Taxes Department.
According to Trade and Taxes Rules, companies moving goods from Delhi are required to pay VAT. It is applicable even for online business: online purchase of any goods, including software, e-books and downloaded songs. In case an online retailer delivers goods from Delhi to a customer in another State, the company is required to pay Central Sales Tax.
Again, any company having annual turnover of over Rs20 crore have to pay VAT. Under both these provisions, these three online retailer companies need to pay taxes to the State Government.
Top sources in the Government said that the department is going to issue show-cause notices to these retailers to realise VAT between Rs90 crore and Rs100 crore. The Trade and Taxes Department is also planning to levy major penalty on the three companies. According to sources, the three online companies are charging taxes from customers but they are not paying it to the State Government.
When contacted, Meenu Handa of Amazon refused to comment saying that they are yet to receive any communication from the State Government in this regard. The investigation by the Trade and Taxes Department revealed that Amazon, Snapdeal and Flipkart have a huge network of dealers across the Capital. “These dealers fall under three categories — registered dealers, unregistered dealers and bogus dealers. Only registered dealers can operate their business legally. These companies are running their business with the overt support of registered, unregistered as well as bogus dealers.
Thus they are violating the law in the city,” said the sources. The Trade and Taxes department is under pressure to achieve the target of Rs21,000 crore in the current fiscal year ending March 31. But the department has realised only Rs12,000 crore till November 2014.
With online retailers like Amazon, Flipkart and Snapdeal making the headlines, local retailers are worried about losing customers. The low-priced products available in online stores act as an incentive for buyers.
The three online retailers offer products at cheaper prices than those at small shops or big stores as absence of physical shops sharply reduces online firms’ establishment and labour costs, which allow them to dictate prices to producers and distributors. If these three companies maintain their sales revenue and grow further, the shopping malls and markets will feel the heat as their sales figures have already declined by 30-40 per cent in 2014.
The acrimony between local retailers and online e-commerce websites, which had been brewing for a long time, eventually touched a sore point when local retailers officially complained to the Government against the recent “Big Billion Day Sale” conducted by Flipkart. local retailers have blamed e-commerce portals of undercutting prices to destroy competition. The Confederation of All India Traders (CAIT) has also demanded the Central Government to bring in a law on online retailing to save local retailers. The sources added that the sales figures of local retailers, including shopping malls and markets like Karol Bagh, Connaught Place and Sarojini Nagar have declined in the past six seven months.
From small grocery stores to medium-sized companies and grocery bigwigs like Reliance Fresh and Future Retail are eyeing the online market. It would be pertinent to mention that the Tamil Nadu and Karnataka Governments have asked the Centre to impose stringent tax rules on online transaction.