E-commerce on the rise, leading to tax surge, too

An advantage of e-commerce is that it keeps transactions up-to-date. This helps the government track all the transactions daily to monitor the levy of the service tax as well as tax collections on time. For decades, several traditional taxi service providers have been evading both the income tax and also service tax

e-commerce startups are successful in making customers use online services for trade and payments, thus earning more tax for the government. The spread of black money, if any, is also curtailed to that extent

A perceptible offshoot of increasing E-commerce-based transactions in India, driven by a band of startups, is helping the Government of India tackle problems of tax collection and black money, and the challenge of driving Digital India programme.

E-commerce startups, which are providing taxi services like Ola, Uber and Taxi for Sure, are levying service tax including Swachh Bharat Cess on each and every passenger travel trip, thus adding to the tax kitty of the government.

Another advantage of e-commerce is that it keeps transactions up-to-date. This helps the government track all the transactions daily to monitor the levy of the service tax as well as tax collections on time. For several decades, many traditional taxi service providers have been evading both the income tax and also service tax by not disclosing the lists of transaction records completely, partially due to the non-formalised industry sector.

The e-commerce boom is helping both the central and the state governments in improving tax cash flows through online transactions. E-commerce is also facilitating resolution of tax disputes and minimizing tax evasion. The current e-commerce trend is also fulfilling the government’s dream of fostering a Digital India in a hassle-free manner. This move will further increase market efficiency, which would attract more global investors to invest in the country, through foreign direct investment (FDI) and foreign institutional investment (FII).

For example, Alibaba Inc., is very keen on coming to India in a very big way in the e-commerce sector. It is a well-known fact that Alibaba Inc has already made significant investments in Paytm and in Snapdeal.

Traditional players in the country operating their businesses in different sectors like taxi services, tourism, hotel, restaurants, and grocery selling have failed in maintaining transparency by not having formal industry status – this resulted in lack of efficiency in the market. All this happened because of paper-based transactions. It was also convenient to indulge in manipulating the list of transactions, which ultimately led to lower tax collections for the government.

Startups like Big Basket, Swiggy, Peppertap and Food Panda are using the web and mobile platforms to operate their business transactions in grocery delivery, food delivery, and other services. Such transactions are recorded and charged taxes accordingly.

Top-ranked e-tailers like Flipkart, Amazon, and Snapdeal are helping connect more business players to use and connect online. The present move in e-commerce has created severe competition in the marketplace, so much that traditional players are also increasingly keen on operating businesses using the web platform. This again is a good sign for the economy, as more and more players are venturing into the e-commerce business taxation becomes transparent, giving no room for evasion.

Naturally, consumers are a happier lot now, as competition results in price cuts and fair deals. Tatahousing Ltd, Housing.com and other major players in selling high-value residential apartments, villas online, thus indirectly helping reduce black money transactions in real estate. The tourism and travel industry players like Make My Trip, Tripadvisor, Oyo Rooms are also aggressively using the web platform, winning trust of tourists. A sort of industry culture is sweeping this unorganised structure.

E-commerce in India is likely to be worth $38 billion by the end of 2016 and $100 billion by 2019. As Assocham stated in its latest report “Increasing Internet and mobile penetration, growing acceptability of online payments and favorable demographics have provided the e-commerce sector in India the unique opportunity to companies to connect with their customers."

There is a new trend of the listing of e-commerce companies in Indian financial markets. For example Infibeam Incorporation Limited announced a public issue and very soon other major players will join the bandwagon. Finally, e-commerce startups are successful in making customers use online services for trade and payments, thus earning more tax for the government. The spread of black money, if any, is also curtailed to that extent.

At the end, it is right to conclude that, e-commerce is helping swell the tax collections, lessen the magnitude of black money problem and, most importantly, giving a push to digital India.

(The writer is an Assistant Professor at Institute of Public Enterprise, Hyderabad)