Amazon comes under tax scanner in Karnataka

The Karnataka state tax department has initiated the process of cancelling the licences of a bunch of third-party vendors of Amazon India, the domestic online marketplace owned by world's second largest e-commerce company Amazon.com Inc, for 'violating the current tax norms', according to various media reports.

The department has served notices to the merchants and ordered them to stop storing their products at Amazon's warehouse, called Amazon Fulfilment Centres, near Bangalore.

According to tax officials, merchants cannot register Amazon's warehouse as their additional place of business under the current tax laws. The particular issue relates to the tax liability as the state tax authorities reckon Amazon is acting as a 'dealer' and needs to pay value added tax.

Meanwhile, Amazon India said in a statement that it has not violated any tax norms, since it acts as just a facilitator of moving products and is not a seller or buyer. "We look forward to an early resolution in order to avoid closing our local warehousing operations in Karnataka and to stay on course for bringing more investments in the state," the company said.

Amazon has had a history of tax related issues in its home country the US where offline retailers have been facing a big squeeze with price competition from online sellers like Amazon. Previously, Amazon did not pay sales tax in many states where it did not have a physical space in the US. This allows it to sell much cheaper than offline retailers.

In India, Amazon operates as a marketplace and only provides a platform for other sellers to sell to consumers. It, however, facilitates the purchase process by intermediating in terms of logistics and payment process.

This is similar to many other home grown ventures such as Flipkart, which is now under a Singapore-incorporated entity and is majority owned by its foreign VC investors.

The development is significant not just for Amazon as also for other e-com firms as they could face a similar scrutiny. Besides, other states could start making a similar call for taxation of online product sales.

Amazon launched its e-commerce marketplace in India a year ago. In July, the firm announced that it would invest an additional $2 billion (around Rs 12,000 crore) to support its rapid growth in India. Amazon.in claims that it has more than 17 million products across categories, which would make it bigger (in terms of product SKUs) than seven-year old Flipkart.com, which has around 15 million products. Amazon runs several warehouses across the country, where it stocks the fastest-selling products like electronics.

Recently, Techcircle.in first reported that Amazon.com's founder and CEO Jeff Bezos is likely to visit India ahead of Diwali in October this year. Around the same time, Amazon is also planning to launch its drone-based delivery services in India.

Amazon had recently announced $2 billion investment in India, a good chunk of which is expected to go into building new warehouses.

(Edited by Joby Puthuparampil Johnson)