Relief for Amazon: Karnataka In Damage Control Mode, Asks Its Taxmen To Go Easy On Dealers

BANGALORE: Karnataka has asked its tax authorities to go easy on their clampdown on dealers selling products on Amazon India’s online marketplace until an amicable solution is reached on various sticking points. The American retailing giant and the Commercial Taxes department have been at loggerheads on who should issue value-added tax invoice to the buyer.

“There have been certain issues flagged to us, and we are trying to sort them out. Until then, we have asked the Commercial Taxes department to review the matter on cancelling the ‘branch certificates’ issued to dealers,” ISN Prasad, principal secretary of the finance department, told ET.

Branch certificates refer to Amazon’s warehouse, shown as additional place of business by dealers. The local VAT authorities have issued notices to about 50 dealers who have partnered with Amazon, asking why their certificates should not be cancelled.

Sources said Amazon will move its warehouse out of Karnataka if the confusion persists. “They cannot run an empty warehouse, for which they have invested millions of dollars,” said a person who has direct knowledge of the discussions.

Prasad, who was earlier principal secretary to the CM as also the information technology department, is hopeful e-commerce firms will continue to find Karnataka a friendly state. The government, he said, is trying to take the lead among states to work out options. “We will come up with options, not just for Amazon, but to all companies doing online business to help them comply with Karnataka VAT laws. We are even prepared to propose amendments to rules or the law, as the case may be, for smooth operation of e-commerce activity in Karnataka,” he said. The whole process of coming up with a set of options for players might take about two months, he said.
The government, Prasad said, was keen to ensure Bangalore remained the city of choice for firms. There is a large presence of IT workforce in Bangalore, most of whom buy from online portals, making the city ideal for online operators to set up advanced back-end infrastructure and support systems. “We want to encourage both e-commerce players and consumers as the business activity has helped consumers too with lower prices.”

Amazon, according to multiple sources, has suggested that the government introduces a rule making it mandatory for online firms to furnish details of transactions, seller’s identity and VAT collected, to tax authorities from time to time to help them cross-check tax compliance. There is a similar rule (1099-K) in the US requiring online platforms to disclose details if transactions exceed a certain value and number.

The sources said Amazon differs with the Karnataka taxmen on what a ‘commission agent’ is. It insists that the seller decides what product to offer on its online platform and at what price unlike in the case of a typical commission agent, they added.

Meanwhile, the dealers whose branch certificate has been cancelled have started moving out of Amazon’s warehouse. “I am a small dealer facing a lot of competition from bigger stores. But working with Amazon gave me a nationwide market, which I would not have got otherwise. Now that advantage is gone,” said a Bangalore dealer who had stocked about 1,000 units at the warehouse.

He had started selling online three months ago only because of the warehouse, packaging and delivery services the online firm provided. “We had reached sales of about 100 pieces a day. I was expecting online to account for almost 40% of this year’s revenue,” said the dealer.