The government reportedly wants Amazon and Flipkart to provide details of business done by their top five sellers and has also asked if these marketplaces are compliant with the goods and services tax (GST) regime. If the aim was, as it appears to be, to appease the offline retailers, who have complained about the ecommerce giants offering illegal discounts, the appropriate course of action was to refer the complaint to the Competition Commission of India (CCI), whose job it is to penalise unfair trade practices. By sending the taxman after the online retailers, the government sends out unflattering signals about its own capacity and its ability to honour commitments about how it would treat foreign companies operating in India.
The government and the tax department have already instituted elaborate compliance requirements for online marketplaces under the GST regime. The government has enough and more data, as ecommerce firms are mandated to collect tax at source on their sales. This creates audit trails that the government can pursue. Vendors have to mandatorily register for GST irrespective of their turnover, making vendor-wise information such as taxes paid and input tax credit availed by them readily available. The government can access the data from GST Network. So, seeking details of the top five sellers makes no sense. Amazon and Flipkart render public service by providing a platform for small and medium enterprises that do not have to spend money on building a distribution network of their own.
As of now, Amazon and Flipkart filing an audit report on compliance with their FDI guidelines is a matter of voluntary good practice. The government could amend the Foreign Exchange Management Act to make such filing mandatory. That would be more than token action.
Source- Economic Times.