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September 4, 2014

Amazon is having problems in India because it doesn’t want to pay taxes

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Amazon's expansion in India has been a bit bumpy.

Amazon’s expansion in India has been a bit bumpy.

Earlier this summer, Amazon announced that it would be investing $2 billion to expand its operations in India—that announcement unsurprisingly came hours after FlipKart, widely considered to be the “Indian Amazon,” announced it would be investing $1 billion towards growth. But, even with $2 billion in hand, growing in India may prove more difficult than expected for the retail giant for one simple reason: Amazon does everything in its power to avoid paying taxes, and the Indian government is not happy about that.

According to the International Business Times, Amazon is using its favorite argument in favor of tax avoidance: “it only acts as an intermediary between sellers and buyers.” Authorities in Bangalore, where Amazon is headquartered, understandably disagree; they think that Amazon is using loopholes to make a “backdoor entry” into Indian retail. The IBT has more on the dispute:

According to India’s FDI [“foreign direct investment“] norms, overseas companies can only be involved in the multi-brand retail business through an Indian subsidiary or in a minority partnership with a local company. Amazon, which has reportedly opened three huge warehouses in Bangalore over the past year, operates what’s known as the “marketplace model,” which allows other companies to use Amazon’s website to sell their products across the country. …

While local dealers are liable to pay more than $16.5 million in Value Added Tax, or VAT, to the government, Amazon is only paying service tax on the commissions it earns for delivering the products, the officials reportedly allege, and have demanded that the company register itself as a dealer and pay VAT.

This is a familiar position for Amazon. The company has been criticized by European authorities for years for channeling its business through Luxembourg, where it’s headquartered; the company is currently under investigation by the European Union for its use of tax havens. Amazon currently only collects sales tax in 21 states in America.

Amazon is fighting back in India. In a statement released earlier this week, the company claimed that Indian laws “have not kept pace with the new-age online business models that enable a faster, convenient and nationwide access to customers for sellers, especially small and medium businesses, at significantly low costs.” At Amazon, even tax disputes are an excuse to brand yourself as a model of customer service.

There’s more at stake here than tax collection, however. India also appears to be trying to keep Amazon at arms length in order to protect homegrown ecommerce companies. Amazon has apparently been told that they can operate within India, but only if they use an Indian distributor, a request Amazon is unlikely to honor.

 

 

Alex Shephard is the director of digital media for Melville House, and a former bookseller.

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