India’s grand e-commerce policy is on hold but the likes of Amazon, Flipkart, and even Netflix are already paying the price for not being ‘Made in India’

India’s grand e-commerce policy is on hold but the likes of Amazon, Flipkart, and even Netflix are already paying the price for not being ‘Made in India’
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  • While the e-commerce policy is on hold, effective April 1, 2020, global e-commerce operators in India are already subject to the ‘equalization levy’.
  • Equalization Levy of 2% will be levied on revenues generated by non-resident e-commerce operators from Indian customers. This will be a boost for Indian e-retail platforms.
  • E-commerce firms which are already reeling under the pressure from the Covid-19 pandemic, have sought for clarifications.
India’s e-commerce sector is worth a mere 5% of the $600 billion retail industry, but it is growing at a faster rate than ever. E-commerce is projected to touch $84 billion by 2021.

And the Indian government is cognizant of the rising e-commerce sector. While its much-awaited e-commerce policy, which was set to be a regulator for all online platforms that sell goods, is on hold, effective April 1, 2020, global e-commerce operators in India are already subject to the ‘equalization levy’.

Through the latest provision introduced in the Finance Act 2020, Equalization Levy (“EL 2.0”) of 2% will be levied on revenues generated by non-resident e-commerce operators from Indian customers.

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E-commerce firms seek clarity

E-commerce firms which are already reeling under the pressure from the Covid-19 pandemic, have sought for clarifications.

“In its present form, it appears that EL 2.0 may be applicable on revenues generated from India by all kinds of e-commerce operators, viz. e-commerce marketplaces/ content providers/ aggregators generating revenues from India, such as online sellers of goods like Amazon, Alibaba.com, e-Bay, etc., online streaming/ content service providers such as Netflix, Amazon-Prime, Audible, etc.; online travel aggregators such as Trivago, TripAdvisor, Agoda, Bookings.com, etc,” said a report by consulting firm Nangia Andersen.

The equalization levy is clouded with ambiguity because of its broad definition. E-commerce players have asked for further clarity on the tax, while also requesting the government to implement the tax on the facilitation fee they charge and not on the total sale of goods.
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“Multinational enterprises will have to evaluate very carefully, the impact of this new charge very carefully and may need to review their business models accordingly,” said the report by Nangia Andersen.

Another boost for Make in India

The equalisation levy is a move that will boost home-grown e-commerce companies like Paytm Mall, Snapdeal etc.
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Prime Minister Narendra Modi in his speech to the nation on May 12 too stressed on switching to ‘local’ products for building a self-reliant India. Modi said that this move will be a boost for the Make in India program.

Earlier, India’s draft e-commerce policy too spelt trouble for Flipkart, Amazon. As per the draft, FDI in e-commerce will only be allowed for the marketplace model and not for inventory-based selling. This means that Flipkart and Amazon, will not be allowed to own or sell through any of their entities.

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