Tamil Nadu makes changes in tax to attract e-commerce industry

Changes in input tax credit has been taken from a futuristic view, says Finance Secretary

The state government has announced two tax changes, related to the Tamil Nadu Value Added Tax Act, 2006, to improve its competitiveness especially in the e-commerce space.

The state has withdrawn a clause to enable the dealers to easily claim input tax credit on interstate sale of goods. Until now, interstate sales to unregistered dealers were not eligible for input tax credit on the respective local purchases.

Now, dealers will only have to pay the local tax, charged at 14.5 per cent.

"Those who do not have Form (C) has to pay the 14.5 per cent and also cannot claim the ITC reversal. This makes them to pay 14.5 per cent for both raw material and finished products. This becomes very unfair and many States have removed. We have been continuing, but we are removing it now," explained K Shanmugam, principal secretary, Finance Department, Government of Tamil Nadu after the Budget presentation by the State Chief Minister O Panneerselvam, who also holds Finance Ministry Portfolio in the State.

"For instance, in e-commerce, if these two taxes are there, the business will shift to other States. Consider a person manufacture a here, keep it in a godown in Tamil Nadu itself and supply through e-commerce, he has to pay 14.5 per cent for raw material and also 14.5 per cent when the transport it to other States. In e-commerce, they supply directly supply to the consumers, without 'C' form. That also will attract the local tax. Since we have taken it out, the State will become competitive. People can have godowns here and do business from here to other States," he added.

This has been looked at from a futuristic view to take care of the State government interest also, he said.