RBI Says States Should Tax E-Commerce Firms to Bolster Revenue

The Reserve Bank on Tuesday made a case for more clarity on taxing the sunshine e-commerce sector, which has been seeing high valuations and frenetic activities, saying doing so will help bolster their finances.

"Taxing the burgeoning e-commerce space could bolster states' own revenues, provided there is greater clarity around rules and procedures governing inter-state trade," RBI said in the 'State finances: A study of budgets of 2014-15' report released late this evening.

"Key to the states recommitting more strongly to fiscal consolidation is a reinvigoration of their own revenues," the report said, making a case to focus on the e-commerce firms to shore up their revenue fronts.

The suggestion, which comes after multiple cases of litigation involving tax treatment to e-commerce portals like the one involving Karnataka and the world's largest online marketplace Amazon India. Kerala has also slapped a Rs. 54-crore tax notice on multiple e-commerce companies alleging tax evasion.

The Reserve Bank said this is a "complex problem" and the country needs to develop a uniform model across states which is easy to implement.

"Leveraging technology and plugging the gaps in the state laws will lower the cost of compliance and monitoring of e-commerce  taxation," it said, giving examples of how other countries having federal structures deal with the issue.

With the goods and services tax coming up, the RBI report said attention will need to be paid to the development of a uniform model for taxing e-commerce to reduce complexity and improve compliance.

The report expressed some optimism of the state budgets overall, saying the budgeted numbers of state finances showed some improvement during 2014-15.

The report, however, added that information available for 17 states warrants a careful assessment of these initial expectations.