After almost four years, Flipkart has again started with large ticket size operations in the state of Bihar and UP.
Consumers in both these states can now order mobile phones from the Flipkart platform. Reportedly, the company took this decision, as the GST roll-out in the country has eased off many tax and billing related difficulties.
Post-GST, nemesis Amazon is also looking to expand and increase its last mile delivery in both these states along with Gujarat. Amazon is further looking to increase delivery of higher value goods in Bihar.
In response to an Inc42 query, a Flipkart spokesperson stated, “Different tax structures in different states is now being eliminated with the implementation of GST. This is a welcome move and will definitely boost sales across India. With GST, customers can buy products across price points from all categories on Flipkart not just mobiles. There is no more a cap on price for products across categories. Customers can avail a wide selection – with GST products can now be shipped from anywhere to anywhere without any restrictions.”
The Flipkart spokesperson further added, “With GST coming in, markets of UP, Bihar and some parts of Gujarat will now be serviced, where orders were virtually nothing, We intend to increase our share in these markets which make up close to 13-15% of the total Indian market.”
An email query sent to Amazon did not elicit any response at the time of publication.
Why Flipkart Limited Deliveries In UP And Bihar
During the period between 2013-2015, Flipkart made many changes in its delivery policies with respect to operating conditions in these states. It stopped deliveries in all of Bihar and only products below INR 10,000 were delivered in Patna. Similarly, in June 2013, Flipkart banned deliveries above INR 10,000 in Uttar Pradesh, including regions of Noida and Ghaziabad.
While Flipkart said the decision was “purely business oriented,” insider reports at that time revealed a different story. As cited by a few internal sources in June 2013, the decision was taken against an increasing number of frauds and prank calls resulting in unnecessary wastage of resources at a high scale. Amazon, Snapdeal followed suit and also stopped or limited deliveries in many cities.
Later in October 2015, all the major ecommerce players – Amazon, Flipkart, Snapdeal – reduced the delivery cap size to INR 5,000, in UP and Uttarakhand. The companies stated that the decision was made owing to the harassment by tax authorities wherein buyers need to file a VAT form and provide the details of the vehicle shipping goods, while purchasing goods from them.
As stated by one of the senior executive of an ecommerce company, “The requirement of the UP government to ask for way bill forms (Form 39) from end-users, even though the consignments that are brought in are for self-consumption, is leading to recurrent incidences of seizure for both prepaid, postpaid and cash-on-delivery consignments. Since the tax liability on these is already being discharged by the seller in the state from where the shipment has originated, such tax demands are unfounded and restricting marketplace deliveries in this market.”
Although, the rule is applicable to all, ecommerce companies that do not have fulfillment centres or use vendors from outside the states, beganhave begun to face the heat. Also, in 2016, several states like Madhya Pradesh, Rajasthan, Bihar, Assam, Gujarat, as well as Uttarakhand, and Uttar Pradesh also levied up to 10% entry tax on online purchases. This further deteriorated the market for ecommerce companies in theses states. Later, Flipkart also filed a case against the Uttarakhand government against the levy of entry tax on ecommerce goods.
Flipkart, Amazon: What Changed
Post the roll out of Goods and Services tax (GST), the tax regime has become standardised, thereby easing off operations for the ecommerce companies.
For instance, while the overall tax rate (including VAT and entry tax) was 30% in UP, it was 22% and 23% in Bihar and Gujarat, respectively. Post-GST, the tax rates on mobile phones is now down to as low as 12% in each state.
Also, the earlier condition of getting a local way bill, which required the ecommerce company to have local warehouses also gets overruled.
Cross-border transport in these states was another issue as earlier buyers had to file a VAT declaration, along with the registration number of the vehicle bringing in products exceeding a value of INR 5,000, which a delivery person has to furnish if goods are coming from another state. The GST rules this out too.
Post GST, the ecommerce arch rivals, Flipkart and Amazon have entered into a new war, trying their ways in to capture the maximum share in the states of UP, Bihar, and Gujarat. For now, who will gain the maximum market share can not be said, however ultimate beneficiary is and will be the consumer for sure.
Update 1: July 6, 2017 7:45 pm
In response to an email query by Inc42, an Amazon spokesperson stated, “With the implementation of GST, we are now working towards specifically enabling customers from Bihar to shop for products upwards of INR 10,000. Our delivery network in these states enables us to deliver in towns like Balia, Bareilly, Mathura, Shahjahanpur, Muzafarnagar, Valsad, Anand, Navsari, Bhuj and Vapi to name a few. We have also invested in building our Fulfilment Centres in Lucknow and Ahmedabad to meet the growing demand of our customers and sellers in the region.
“We have witnessed continuing acceleration in new customer acquisition growth with a 500% + growth from towns like Singrauli, Alwar, Dholpur, Muzaffarnagar and Shivpuri and this is only expected to go northwards. Non-metros continue to be the driver of new user growth, with share of new customers in non-metros moving past 75% in 2017. With our investments in mass marketing and new experiences, we are focussed on building new/incremental reach.”