Tax crackdown on ecommerce in India could cause financial crisis, IMF warns
The tax crackdown on online retailing could cause a financial crisis if not stopped soon, the International Monetary Fund (IMF) warned on Friday.
The government has been targeting ecommerce and online payments since March 2016 and the levy of the excise on goods and services was launched in September last year.
In October, Prime Minister Narendra Modi announced that a new scheme would be launched on January 1 to encourage the business of online sellers and online customers.
The scheme will allow customers to register online, pay in cash, pay through credit cards, and transfer money electronically.
In a report on November 24, the IMF said that the excise tax scheme could generate more than Rs 1,100 crore per annum, or about $2 billion per year, for the Indian government, which has already incurred around Rs 30,000 crore due to VAT and indirect taxes.
The IMF said the government should consider the impact of such a levy on consumer spending.
However, a recent report by PricewaterhouseCoopers, a consultancy, found that the tax will cause a loss to consumers.
It said the tax levied on online transactions could create a black market in goods and, ultimately, the price of goods.
In addition, the tax may discourage consumers from paying online, hurting the already weak retail sector.
“The tax is likely to increase the price and reduce consumer spending,” the report said.
“It is unclear whether this will have a significant negative impact on the Indian economy.
In fact, this could make the economy stronger.”
The report suggested that the impact on consumers is not yet clear.
The authors said the GST was not the only tax that could cause economic problems, adding that the government needs to consider its impact on other taxes and the cost of government expenditures.
The report added that the GST could also increase the government’s burden by diverting the revenue to other areas.
The GST has already been passed by Parliament and it will be implemented on January 2, 2019.
The Modi government has made the GST a key plank of its election manifesto and has made it mandatory for all purchases.
However on January 3, the government introduced a notification that made it compulsory for all businesses to collect the GST from employees and contractors.
The government has also said that if a business fails to collect tax, it must make it available for refunds to customers.
The new tax is set to take effect from January 1 and is expected to cost the Indian Government around Rs 1 lakh crore, according to the IMF report.