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E-commerce loopholes that are likely to be fixed by India’s e-commerce policy

  • Aug 6, 2020 | Divita S Gupta

E-commerce loopholes that are likely to be fixed by India’s e-commerce policy

While eCommerce firms across India have earned quite a few brownies points for working practically without any breaks during the nationwide lockdown and are being counted among the nation’s front runners, there is likely to be trouble brewing once the lockdown lifts and the Government diverts its attention to the eCommerce policy which is currently on hold. What kind of loopholes are likely to be fixed with this eCommerce policy? Let's find out.

Regulation of predatory pricing
Deep discounting or predatory pricing refers to a greater than usual reduction in the price of goods sold online. These prices are much lower than the product’s actual retail value. Because eCommerce brands usually offer deeper discounts in comparison to traditional offline markets, many trading bodies have raised objections against the practice as it distorts and even disrupts the playing field. This issue gained a significant amount of traction during the festive season in 2019 especially when large foreign eCommerce players like Flipkart which was acquired by Walmart and Amazon started promoting festive sales.

Data storage
The Ministry of Electronics and Information Technology has previously written to the Department of Industrial Policy and Promotion (DIPP) that is responsible for making policies and issuing directives to eCommerce firms, to bring these players under local data storage norms in its e-commerce policy. When the Reserve Bank of India made it mandatory for payment firms like American Express, Mastercard, Visa, etc to store all payments data within the country, experts argued that if a payment is made via an eCommerce payment gateway, even if any of the payment firms mentioned above are involved, the data will stored with both, the payment firm and the e-commerce company and if the e-commerce company has a server in other country, there is data leakage outside of India. For instance, if a shopper uses Mastercard to shop on an e-commerce site, the data goes to the e-commerce players well. In such cases even if Mastercard adheres to RBI guidelines and stores the data locally, the e-commerce player may be storing data overseas. So the fundamental purpose of data not leaving the country is defeated.

Gift loophole
China based eCommerce companies like SheIn and Club Factory were brought under the radar of the Centre last year after Indian customs raised flags that these companies were exploiting India’s gifting rule. As per the provisions of this rule, gifts priced below ₹5,000 are exempt from duties. Indian customs claimed that several gift deliveries were entering India from China and were reaching customers using the Indian postal service. The proposed eCommerce policy expects companies like SheIn and Club Factory to ensure that shipments from abroad are channelised through the customs route. 

In wake of the COVID-19 crisis, any decisions with reference to eCommerce policy have been placed on hold and are likely to be dealt with once the lockdown is lifted. But if expert opinion is to be believed, India’s eCommerce policy is expected to be a hard swallow for foreign eCommerce firms who will be required to make huge changes to their businesses to comply with the proposed rules for ventures that have foreign ownership.

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.

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