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Uber, the popular Bangalore based cap operator was asked to change its payment mechanism by the Reserve Bank of India. Popular ecommerce sites like Myntra, Urban Ladder, Flipkart, and many other have been under the scanner for various regulatory matters like FDI violation, VAT related issues, Enforcement Directorate probes for maters before April 2013, Payment mechanism violations etc. With each passing day new violations or potential violations seem to be added.
The guesswork's been on for a long time. In 2010, I remember talking about regulatory changes such as permission of FDI in multi brand retail and B2C ecommerce etc. It’s been 5 years since and there seems to be no clarity or hope or anything substantive that makes e-commerce companies, stakeholders or those wanting to invest in these companies breathe a sigh of relief!
In fact a string of recent articles, a few referenced below, make a strong case for easing FDI norms for multiband retail and also for having more predictable regulatory regime for such companies.
One the one hand one there is encouraging news that of over $3 billion investments were made in e-commerce companies. In this financial year, commitments of $10 billion have been made by SoftBank towards Indian ecommerce and ITES companies. On the other hand the world’s largest e-retailer, Amazon, publicly in its filings last week, acknowledged the risks of operating in India. As per newspaper reports, in its quarter results filing to the US Securities and Exchange Commission, Amazon said there are “substantial uncertainties” regarding the interpretation of Indian laws.”
Recently, Uber, the popular Bangalore based cab operator was asked to change its payment mechanism by the Reserve Bank of India. Uber allows users to download a mobile application after asking for credit card details. Popular ecommerce sites like Myntra, Urban Ladder, Flipkart, and many other have been under the scanner for various regulatory matters like FDI violation, VAT related issues, Enforcement Directorate probes for matters before April 2013, Payment mechanism violations etc. With each passing day new violations or potential violations seem to get added. These companies represent India coming off age. They are trying to simplify (even if for profit) our day to day lives whether as suppliers of grocery, facilitators of our travel plans, providing us payment solutions or just helping us tune in with the latest in fashion!
If over $3 billion have been invested in these companies, they must certainly represent the way young Indians want to lead their lives. Instead of simplifying and creating new laws to support this fast evolving eco-system these new age companies are left with no choice but to defend their legal positions not being clear of the repercussion on them, their directors, investors or even their businesses would be. Each day brings a new Legal notice from the regulatory authorities!
The following areas require immediate attention. Not only would this help e-commerce companies but it would also make administration of laws and tax revenue collections simpler.
– FDI in Multi brand Retail by e-commerce companies is prohibited and should be opened.
– FDI in B2C ecommerce: This has been a long pending and debated subject. As per the FDI policy, 100% FDI is permitted in B2B ecommerce activities but not in B2C. It’s time the government took a re-look at this sector and opened it to FDI.
Streamlining of the incidence of indirect taxation such as value added tax, central sales tax, service tax on transactions within state, cross border sales and exports. Separate State Laws for VAT causes further confusion over interpretation. Recently VAT on e-commerce companies has been in the news in Karnataka. The players in the e-commerce marketplace model say that since they do not directly sell goods, VAT should not be applicable to them. But a state finance department official in Karnataka said since companies like Amazon offer their platform and services for a commission, "even commission agents have to pay tax".
– Introduction of the much awaited Goods and Services Tax and clarity on local state levies- LBT, Octroi, etc.
– Better Consumer Protection Laws for interstate sales especially since ecommerce companies can now sell across states.
– Payment Solutions and Fraud prevention to ensure protection for online and m-commerce transactions.
–IT security and Privacy Policies for data shared by consumers.
– Competition Laws for preventing predatory pricing , undercutting and excessive discounting etc.
Am I asking too much?
There seems to be some hope for our e-commerce stars finally, according to a TOI report, department of consumer affairs has presented a proposal for final consideration in front of Committee of Secretaries (CoS) that could bring e-commerce under the purview of up to nine government departments. As mentioned in my article earlier, this is a welcome move to address the growing needs of this vibrant sector.
The proposal has said that these 9 government departments will oversee different areas of ecommerce business. Here is what they propose:
· Ministry of IT and Telecom: They will handle data protection, cyber security and issues related to registration of server and websites.
· Revenue Department: They will handle taxation related issues.
· Reserve Bank of India: They will look into banking and foreign exchange issues.
· Consumer Affairs Department: They will take care of consumer protection issues.
· Commerce and Industry ministry: They will handle Foreign investment and trade policy.
· Home / Finance / Corporate Ministry – They will look into ecommerce related criminal frauds.
· Information and Broadcasting Ministry: They will take care of advertising norms and related matters.
The Indian ecosystem lacks market consolidators. But that could change imminently.
The more I look at the kinds of things that the government wants to do with education, the more it occurs to me how important a role technology needs to be playing in the implementation process.
Tech companies are nothing without growth. The real value creation will take place in companies that are able to demonstrate differentiated growth by taking advantage of the imminent technology boom (a result of the explosion in data & apps).
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