Amazon’s Karnataka tax trouble continues

Despite his Government coming under pressure from various stakeholders to quickly resolve a tax dispute with online retail giant Amazon, Karnataka Chief Minister Siddaramaiah is yet to firm up a date and time to meet Amazon India officials for the same.

“Amazon has sought a meeting with us, but we are yet to finalise the date and time of the meeting,” Siddaramaiah told Business Line .

The State Government has sent cancellation notices to around 100 sellers, or third party merchants, who sell their merchandise on Amazon.in, ordering them to stop storing their merchandise in the Amazon warehouse or fulfilment centre located on the outskirts of Bangalore.

The problem arose because the Government wanted Amazon to pay up value-added tax (VAT) for all the seller merchandise that is stored in its warehouse and is sold through its Fulfilment by Amazon (FBA) service.

Amazon, on its part, says it is just providing a service for third party sellers to sell their merchandise conveniently and quickly and is not liable to pay VAT as it does not own the merchandise. “Amazon.in is a marketplace where sellers of all sizes use our platform to reach customers across the country,” a company spokesperson said.

VAT is a State tax that is charged on the sale of goods and is treated or interpreted differently in different States. Amazon has not faced tax issues in other States where it owns warehouses or fulfilment centres.

Apart from its Bangalore warehouse, Amazon has six fully operational warehouses in Mumbai, Delhi, Chennai, Jaipur, Ahmedabad and Tauru (Haryana).

In an earlier interaction with Business Line , Amit Deshpande, Director & GM Seller Services, Amazon India, said: “With our FBA service, sellers save money by replacing their upfront capital expense of storing goods, tying up with a courier service, packaging costs, etc, with a low variable cost as we offer a pay-as-you-go service wherein they pay only for the services they avail from Amazon.”

In this model, sellers will always have the flexibility to choose the number of products they want to have fulfilled by Amazon and scale according to their business requirements, he said.

A Q1 2014 survey conducted with sellers on Amazon.in who have used FBA showed 85 per cent of respondents reporting a sales increase since joining the service and of these, 40 per cent respondents reported a sales increase of at least 30 per cent.

“While FBA is definitely a service that the majority of sellers who are largely small and medium businesses will benefit from, the fact is that Amazon is much more than a mere service provider, as it is storing seller goods and merchandise in anticipation of orders from potential customers. This makes Amazon liable to pay taxes to the State Government Government,” said a senior tax consultant who has worked with eBay, requesting anonymity. “However, if it just facilitates direct transactions between sellers and buyers through its platform without storing the goods in its warehouses, there would be no question of Amazon paying up taxes.” Industry observers say unless the Government resolves the issue to the satisfaction of both parties, Amazon will be forced to move its warehouse out of Karnataka, rather than keep it partially empty.

Asked if the Karnataka Government has fixed a timeline for resolving the tax issue, the Amazon spokesperson said: “We have been working with the relevant authorities to address their concerns. We understand this to be a case where the 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.

“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.”