Amazon (And Others) Brace For India’s New eCommerce Tax

The jousting over eCommerce taxes — especially for U.S. firms operating on an international scale — is about to get more heated. Last week in India, the government proposed a tax on eCommerce transactions that will likely increase operating costs for sellers large and small.

The tax, technically known as “Tax Deducted at Source” (TDS), is sent directly to an account held by the central government. The new TDS will apply to the gross amounts charged for sales or services done through eCommerce operators, indicating that platform firms are the intended payors (in addition to the firms on the platforms).

The government has said that the new tax will not apply in instances when a seller’s gross sales across an eCommerce operator through the previous 12 months have been less than about 5 lakh rupees (500,000 rupees or just under $7,000 USD).

The tax may be a case for the government to boost its own coffers on eCommerce, anticipated to be worth as much as $200 billion annually by 2026, as estimated by the India Brand Equity Foundation (IBEF) late last year. That is up from roughly $50 billion at present, with an estimated 175 million individuals shopping online in 2020.

However, the government’s actions seem to imply that it views the eCommerce field in India as inherently unequal. Minister of Finance Nirmala Sitharaman said the exemption is being put into place “to provide relief to small businessmen” who fall under that revenue threshold, as well as furnish personal account numbers and Aadhaar.

Consider the fact that the Competition Commission of India ordered an inquiry last month that would look at the discounting policies of Amazon and Flipkart, as well as the agreements struck with third-party sellers. Trade organizations representing smaller eCommerce merchants, such as the Confederation of All India Traders, have alleged antitrust behavior from those eCommerce giants.

The new tax would come on top of recent changes to eCommerce’s structure, which came into effect at the beginning of 2019. With those mandates, the Indian government said that online marketplaces can no longer enter into such third-party deals, or have a single vendor supply more than a quarter of inventory across a given product. That would apply to companies and platforms as diverse as OYO, Uber and others.

The Reaction

Amazon, for its part, has said that the TDS will impact smaller sellers in detrimental ways. As noted last week in the Deccan Herald, Amazon India Country Manager Amit Agarwal noted that the tax could hurt the small businesses it was designed to protect. The impression may be that the tax amounts to a “papercut,” but it “could impact working capital of small businesses.”

Amazon India and Flipkart stated that they are both studying the proposed tax. As reported in The Economic Times, an Amazon India spokesperson said, “We are studying details, and will reach out to the government for clarifications. We hope the tax regime is simple and uniform so that millions of small and medium businesses can go online, digitize their operations and continue to contribute to growing the economy.”

To get a sense of how the impact may accrue to smaller sellers, Kumar Rajagopalan, CEO of Retailers Association of India (RAI), told Rediff.com that the tax can “create a cash flow situation for genuine sellers, too. Ideally, the requirement should have been [a goods and services tax] instead of TDS,” adding that “most retailers have net profit margins of about 3 percent, and this means that 33 percent of their net income has been blocked as TDS.”

Facebook Fines

Separately, Facebook has reportedly settled a lawsuit for violating laws in the state of Illinois tied to facial recognition technology, agreeing to pay a fine of $550 million. The settlement was disclosed in the company’s latest quarterly earnings results, reported by The New York Times.

The Illinois law — on the books for more than a decade — sets parameters for the collection, use and storage of biometric information. Facebook had been sued over the use of “tag suggestions,” and had allegedly broken the law by collecting the imagery without asking for permission. The law allows for fines of more than $5,000 per violation.

‘Rent-A-Bank’ Practices Examined

Beyond eCommerce and data privacy, this past week saw the House Committee on Financial Services hold a hearing, where representatives from several consumer groups said that “rent-a-bank” schemes harm consumers through predatory lending.

Lauren Saunders, associate director of the National Consumer Law Center, said in a testimony that “state-regulated lenders launder their loans up to 160 percent annual percentage rate (APR) through banks in order to evade state interest rate caps. These schemes are spreading around the country, and are starting to explode.”

Through the “rent-a-bank” method, she detailed in her testimony, these lenders claim they are “merely the agent, service provider or assignee of the bank that funds the loan, but then quickly sells the loan or the receivables.” She recommended that Congress pass the Veterans and Consumers Fair Credit Act to extend the 36 percent rate that applies to service members and their families.