Huge GST Revenue Loss During E-Commerce Festival Sales

Confederation of All India Traders (CAIT) sent a communication to Hon’ble Union Finance Minister Smt. Nirmala Sitaraman, alleging that e-commerce companies are offering products at deep discounts and it is leading to huge GST revenue loss. CAIT particularly pointed out at Amazon and Flipkart festival sales, where these e-commerce companies are giving deep discounts ranging from 10% to 80%.

This month, the traders association had also written to the Minister of Commerce and Industry Mr Piyush Goyal, requesting for a ban on the festival season sales. CAIT says that GST is to be charged on the actual market price but during festival sales, e-commerce companies charging GST on discounted price. This leads to a huge revenue loss for the government.

CAIT is also alleging that during these sales, the companies indulge in deep discounting, which is against the mandate of press note 2 of Foreign Direct Investment (FDI) Policy, 2016. This deep discounting is also leading to predatory pricing. They have also raised other points regarding business model and creation of uneven playing field.

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The FDI policy does not allow the e-commerce companies to own or control the inventory. These companies have to act as market places and only the inventory owner has right to offer commodities at discounts. Simply speaking, the e-commerce companies are authorised to do only business to business (B2B) transactions but they are conducting business to consumers (B2C) transactions also. CAIT urged the Finance Minister to order an investigation into the business models.

The CAIT National President Mr B C Bhartia said that the deep discounts offered by e-commerce companies are funded by the investors. In actual terms, e-commerce companies are loosing but the government is ultimately losing their revenue by allowing GST on discounted price. The deep discounting is creating an uneven playing field between e-commerce marketplaces and offline market places.

In the letter, CAIT said that if a trader makes a small mistake during the business transactions, he is subjected to several penalties and even prosecution. Now, traders are concerned that, no actions have been initiated by the government against these e-commerce companies, who are clearly violating FDI norms and causing huge GST revenue loss.

He also clarified that traders are not against the e-commerce business and they are in the view that e-commerce is the future mode of business in India. They are arguing that there should be a level playing field where there should be no element of predatory pricing or deep discounting.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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