It is time to celebrate, but their time of celebration is marred by state governmentss apathy. It may well derail their growth in Bangalore, which accounts to at least 30 per cent of the revenues of each of these etailers. Here in lies the problem, Rs 6,000 crore in gross profits is a number which state governments cannot ignore. For them it is a source of revenue and they are demanding at least 1 percent of it.
However, sometimes it is hard to tell who is after whom. The state governments blame etailers over rules of doing business and etailers blame state sovernments over illogical taxes.
Karnataka, West Bengal, Uttar Pradesh and Jharkhand have been actively harassing these etailers. Karnataka, for example, asks etailers - like Flipkart, Amazon and Snapdeal - to collect 1 percent tax from sellers whose primary business is registered in another state. The refusal of Amazon to collect such a tax – from sellers - has made the state clampdown on their warehouses, which bring in goods from other states. Amazon India promptly moved to Telangana and Tamil Nadu.
The problem begins in 2012 when foreign direct investment was allowed in the retail industry, the Congress Party cleverly left the sanction - whether to adopt FDI in retailing or not – in purview of state policy. The party also ensured that foreign direct investment was not allowed in etailing in India. So every etailing company pivoted their businesses to a market place platform to follow rules of FDI. These businesses then fell in the purview of taxes for transferring goods from one state to the other.
Inter-state taxes are some of the most nefarious outfits, which is controlled by middleman and traders. The etailing industry, with market place business models, which transfer goods of small traders from one state, to another, has come in conflict with the taxman throwing new rules at them.
Recently Uttar Pradesh has begun to harass consumers shopping on these platforms. If a consumer buys goods worth more than Rs 5,000 then the person has to go to the trade wing of the state government and fill out a form, which questions the intent of bringing such goods in to the state.
This draconian rule will hurt business. What the UP sovernment fails to realise is that it will lose credibility in the long run. The UP government blames etailers for not setting up fulfilment centres in their state and is clearly arm twisting etailers to set some warehouses. The government wants to create jobs, which becomes good election campaign material. However, this is not a credible way to get investments in to the state. Etailers currently use third party warehouses and logistics providers to ship goods in to Uttar Pradesh from their fulfilment centres in Noida and Gurgaon. All top etailers have taken a stance in not shipping large ticket items in to the UP state.
Telangana, Tamil Nadu and Andhra Pradesh have been proactive in making all the right moves to attract investments from etailers. This problem will not stop as long as the proposed Goods and Services Tax will include etailing in its purview. It looks like the states will oppose it and will want to continue arm twisting etailers with tax rules, which is OK if there was a law being flouted. But how does one contend when every now and then a new rule is being made just to make money out of etailing. That is unacceptable, which the respective Governments of these States deem as a necessity.
