Amazon has been in the news for their tax troubles in Karnataka from the past one year. The online marketplace has been accused by the Karnataka government for expecting VAT exemption. But the latest update from that corner suggests that the Tax department doesn’t share this opinion. Ritvik Pandey, Commissioner of Commercial Taxes asserted that Amazon hasn’t requested for VAT exemption nor there is a case of tax evasion.
According to him the core issue is that Karnataka’s VAT regulations don’t have any provision for Amazon’s fulfillment centre model. Pandey further added, “The tax department does not deal with policy.”
As a result of these tax-ing woes, it didn’t come as a surprise that Amazon picked Telangana over Karnataka to set-up their largest fulfillment centre. Earlier this month, spokesperson of Amazon shared ‘currently all future investments in warehousing infrastructure for the e-commerce business in the state of Karnataka are on hold.’
S R Patil, Information and Technology minister of the Karnataka government said, ”The government will not yield to their blackmail tactics. The company will not go out of Karnataka as it has a good future here. If it does will be suicidal to the company.” He went on to add, “If Amazon goes to Telangana, it is not going to get any tax exemption as that state has no money to pay salaries to its government employees.”
Amazon follows a fulfillment centre model, which simply means the centre serves as a warehouse where registered sellers stock their products at a price. Amazon insists they are not retailers but mere facilitators. A source said, “The company does not own the goods at any point and neither does it sell on behalf of any seller. It is only providing services—storage, delivery, etc.—for which it charges the seller. So it is not liable to pay the tax.” While the government maintains, “As per the Karnataka VAT laws, they (Amazon) are acting as commission agents, and hence should discharge their liabilities to the government under the Fulfillment model.”
Not entirely. By the looks of it, Amazon is acting well within the law. While speaking to ETRetail, an industry expert said, “Since Amazon gets its capital from outside the country, such invoicing will go against the Centre’s law that bans FDI in retail. The company does not want to flout any rules.” If the issue isn’t resolved soon, Karnataka state will end up losing lucrative businesses. The need of the hour is to resolve the tax-regulatory issues and “announce policies and procedures by way of keeping pace with the new-age online business models which are investment-conducive”, as BCIC vice-president Anuj Sharma rightly stated in one of the news reports.
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