Amazon warns investors against regulatory risks in India

The world’s largest online retailer Amazon.com has said that the structure of the company’s Indian operations may violate Indian laws since there are “substantial uncertainties” regarding interpretation of foreign direct investment (FDI) and other regulations in the country. Amazon made this disclosure in its standard quarterly regulatory filing with the US stock market regulator Securities and Exchange Commission after announcing company’s third quarter results earlier this month.

Recently, the Karnataka government has decided to amend the Value Added Tax Act to get rid of dilemma surrounding e-commerce and bring its transactions under the tax net. It plans to officially announce the amendment in the forthcoming winter session of the state legislature. The entire issue of VAT and problems surrounding it came to the fore with Amazon's warehouse launch in Hoskote. The dealers showed the Amazon warehouse as their additional place of business or branch to avoid paying certain taxes.

The government claims that the law will deal with ambiguities surrounding the marketplace model adopted by several online retailers. Under this model, e-commerce players offer an online platform that retailers and buyers can use to make transactions; the e-commerce players may also offer logistics and warehousing facilities to the sellers. Amazon in India has only a marketplace model, but the same in Flipkart's case is a small part of its overall operations, because most of the sales are done by the company, through a different entity.

The players in the marketplace model say that since they do not directly sell goods, VAT should not be applicable to them. But the state finance department argues that since companies like Amazon offer their platform and services for a commission, even commission agents have to pay tax. Under the existing VAT Act, both dealers and commission agents have to pay tax. The state government's amendment is expected to clarify that e-commerce players will fall under that category.