Amazon Runs Into Tax Dispute In Karnataka

E-commerce giant Amazon, which recently invested $2 billion in India, has landed up in regulatory trouble in Karnataka after tax authorities asked some merchants not to store the company's products in warehouses due to a dispute over taxes.

The Enforcement Directorate is examining whether Amazon India has circumvented restrictions imposed on foreign investors by selling directly to domestic consumers. The Karnataka government has now served notices to over 100 third-party merchants, forbidding them from storing their products in Amazon’s storehouses near Bangalore.

The dispute is regarding the quantum of tax Amazon should pay on goods sold by third-party merchants and delivered to customers directly from its Bangalore warehouse. India does not permit foreign direct investment in e-commerce. Hence, companies like Amazon and Flipkart operate as market places, where they host third-party merchants instead of owning the products.

The warehouses, also known as fulfilment centres, store millions of products of different sizes across several categories. Sellers from all over India send their products to Amazon’s fulfilment centres, and Amazon ships the order to the customer.