Union Budget: the e-commerce limbo continues

The Union Budget 2016-17 today sprung surprises for sectors like health, education and agriculture. But to the disappointment of online businesses, there was no mention of e-commerce at all. YourStory had shown earlier why defining 'e-commerce' is essential. Yet, it does not come as a complete surprise – the Budget, after all, is a financial document. Although it does not provide a definition for e-commerce, it does have some good news - the best of which is a 100-percent tax deduction for three years for startups (to be listed from April 1, 2016). Additionally, the Companies Act will be amended to speed up registration of startups. A process which used to take a month or more shall now be finished in a day, if Finance Minister Arun Jaitley ensures its implementation on ground.

GST and other pains

The government has reiterated its commitment to implementing the Goods and Services Tax (GST) Bill, which is currently stuck in Rajya Sabha, during this Budget session. E-commerce players are eagerly awaiting the execution of GST as it eliminates all indirect taxes. Anup Vikal, CFO, Snapdeal, said: “We hope for a faster political consensus on the measures outlined in the pending GST reforms. These will help eliminate the many taxation problem at the root and be a significant step forward in the ease of doing business in India.”

Online marketplaces – forming a major chunk of e-commerce, in terms of reach – connect customers with sellers through their websites. But they are liable to pay the service tax as they generate invoices. These players are troubled by multiple taxes and lack of clarity in norms like that of foreign direct investment.

However, as Nihal Kothari, partner (indirect taxes) at Khaitan & Company, said, implementation of GST and definition of e-commerce are related. “E-commerce should have been defined. Now indirect taxes still exist. There has been an increase in cess charges, especially in garments and jewellery,” he added.

Since their goods move between States, e-commerce players are keeping their fingers crossed for a uniform national tax, instead of those levied by States separately. Kiran Murthi, CEO, AskmeBazaar, said: “We are hopeful that GST will be a reality soon, thereby ensuring uniformity in tax rates and regulations.”

Towards a cashless economy

E-commerce players have always encouraged cashless transactions. Although we are far from going completely cashless, this Budget has promised automation facilities in three lakh fair price shops by March 2017. Since social security platforms like Aadhar are also digitalised, it is a positive sign for e-commerce. Govind Rajan, COO, FreeCharge, said, “With the recent announcement by the government around waiving off surcharge and convenience fee, this move will further open up the scope for automation of payments at fair price shops by embracing new forms of digital payments like wallets.”

Farmers’ joy

In an unexpected move, the finance minister has announced FDI in food retailing. Since food is the largest category in retail in India, the move is a hopeful one – the government might just add other categories in the near future. However, this is just a budgetary announcement. It is up to the Directorate of Industrial Policy and Promotion (DIPP) to release the policy now; the directional achieved is surely encouraging though.

More importantly, the Budget allowed a national online market for farm produce. So far, there were restrictions on farmers as the Agricultural Produce Marketing Committee Act let them sell only in designated mandis within the State. Arvind Singhal, Chairman of advisory firm Technopak, said: “An online platform will eliminate commission agents. Once States accept this, farmers can do inter-State purchases easily.”

 The National Agriculture Market policy of 2015 aimed to electronically connect all mandis and marketers so that traders can find prices from other States through this website, bid and buy. Anurag Awasthi, Founder and CEO, Save Indian Grain, says that while an online platform is welcome, execution is more important. “Any e-commerce platform needs to have certification, arbitration, and litigation mechanisms in place. Hopefully they will mandate these. Being defined and recognised in a court of law gives the stakeholders more security,” he said.