By asking e-commerce giant Amazon to pay a VAT on the products that it retails but doesn?t own, the Karnataka tax authorities have opened up an altogether new debate on regulations that should govern the online retail space. Indeed, it would appear that a fresh set of norms for the entire online ecosystem would need to be put in place given how the state has issued show-cause notices to vendors of Amazon, for declaring the online retailer?s warehouse an additional place of business. Amazon in India offers a service?Fulfilment by Amazon?through which the global giant encourages third-party sellers on its platform to store goods in its warehouses even before an order is placed. The idea is to be able to deliver quickly when customers make purchases. In August 2012, the Authority on Advance Rulings had ruled that Amazon was providing an online retail distribution channel and the associated logistical services and its role came across clearly as one of service provider.
Under the circumstances, it is only logical that Amazon should be paying a service tax, if it isn?t already doing so. As for the VAT, it is an onerous task to collect the sales tax from the numerous vendors, or to verify whether the sales tax has been paid in another state but that is the nature of its job. The authorities could perhaps ask Amazon to collect, from each of these vendors, a declaration to the effect they have paid the VAT and then do a check; there would, of course, be no liability on Amazon if the tax is found to have not been paid. The other way out could be for Amazon to pay the tax, on behalf of the vendors, and recover it from them. Either way, the government should not lose any revenue. The tax authorities do have a point when they question how so many vendors have registered the Amazon warehouse as an additional place of business; even if there is no rule capping the number of vendors that can declare a particular place as an additional place of business, the spirit of the law would suggest that such a registration be backed by some staff, infrastructure and so on. These problems can be addressed if the rules for the e-commerce space are framed quickly; the addressable market is tipped to grow from around $2.3 billion currently to $32 billion by 2020 and the government should clarify the ground rules so that it can get a share of the spoils.
