Updated: Amazon Says It Might Have to Shut Down its India Operations

According to the recent data shared by the World Bank titled, “The Ease of doing Business 2015” India ranks at #142 among 189 countries with regard to ease of starting a business in the country. The position has fallen down further from #134 as of June 1st last year. India always has had a reputation of being a very difficult country to do business in. Looking at the current rankings, it seems Modi’s vision of making India’s ranking among the top 50, is not coming along too well.

Until now there were primarily Indian companies which suffered due to the complex structures and processes of doing business in the country, but now global players, which have launched their operations in India, have also started crying wary of these hurdles, as they too have started facing problems in the country in regard to operating their business in India.

Recently Amazon, in its filing with the US Securities and Exchange Commission, mentioned that it’s business in India involves unique risks as there are “uncertainties over the country’s laws and regulations.” and thus could impact its business in the country.

It stated:

“In addition, our Chinese and Indian businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or in China enforce contractual relationships with respect to management and control of such businesses.. If our international activities were found to be in violation of any existing or future PRC (the People’s Republic of China), Indian or other laws or regulations or if interpretations of those laws and regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have licences revoked, or be forced to shut down entirely.”

Earlier, Amazon which operates on a marketplace model in the country, had received notices from the Karnataka’s tax department that barred Amazon India from selling products from its warehouse in the state by cancelling the licenses of more than 100 third-party merchants that work with the local unit of the company.

The issue in Karnataka revolves around the fact that Amazon stores certain products owned by third-party merchants at its warehouse even before a customer has ordered them; whereas in other cases Amazon just simply picks up products from merchants after a customer has placed an order on its site. As it operates on a marketplace model, Amazon keeps a cut and passes on the remaining proceeds to its merchants, who then pay VAT to the state government.

But the Government has asked Amazon to cough up the VAT (VAT is a State tax that is charged on the sale of goods and is treated or interpreted differently in different states) for all the seller merchandise that is stored in its warehouse and is sold through it’s Fulfilment by Amazon (FBA) service.

But as per Amazon, it is just providing a service for third party sellers to sell their merchandise conveniently and quickly and is thus not liable to pay VAT as it does not own the merchandise.

Besides this, Amazon is also offering products through a JV with N.R. Narayana Murthy’s Catamaran Ventures, which is also expected to come under the radar, as reported by Mint.

Launched a year back, Amazon had recently committed to invest $2 Bn in its Indian operations and is on track to touch $1 Bn in gross sales.

Well Amazon is not the only one which is facing these hurdles; previously ED was also probing Flipkart to check if it was guilty of FEMA violations. However it got a clean chit. There were also reports that Enforcement Directorate was probing dozens of ecommerce players to check whether they are complying with the rules and regulations.

It has been emphasised by many that Indian laws have failed to keep up with the changing business scenario. In terms of ecommerce, there are no specific laws and thus the firms end up, many a times, in the grey. Even in the case of taxes, the ecommerce sector is facing a major setback, as several taxes have to be paid under the indirect taxation structure of India, which involves a lot of compliances. The Government had also introduced GST i.e. a single goods and service tax to bring in more clarity about the taxes to be paid on goods and services and to help the firms produce more efficiently. However, the problems faced by ecommerce companies remain unsolved.

Must Read: Are Indian Grandfathered Tax Laws A Roadblock For Ecommerce In India?

Adding on, if we talk about ease of doing business in the country, the on demand taxi booking service, Uber, is also facing a tough time after the RBI declared that it is now mandatory for companies to follow a two-step authentication process for credit card transactions. Thus it has been given a deadline of 30th November to come up with an alternative payment mechanism.

Though the government is now working hard on easing the processes for people to do business in the country via various initiatives such as making company registration a 27 days process under its Make In India Campaign, it shouldn’t forget that these global players, who are launching their operations in the country, also need to be taken care of and looked after, as these are also the ones bringing in employment and further benefits for the people and the consumers.

Update: Post publishing this article we received following response from Amazon,

India has been covered as part of our International Market Segments in the Risk Factors section of our 10-Q. It is given our rapid growth and announcement of substantial investment that we have called out India explicitly for the first time this quarter.