A Loophole for Giants -FlipKart, Amazon & Snapdeal – A New Study
CA Paras Mehra
Three days ago, the big giants like Flipkart, Amazon received a serious threat from the Maharashtra Government itself. Some leaders of Swadeshi Jagran Manch (SJM) which is an economic policy front of RSS had met the Finance minister Arun Jaitley and sought a ban on ecommerce portals as they are killing the domestic business.
This was in the news, however somewhere, it is true that the e commerce giants like Flipkart, Amazon etc. are really affecting the domestic businesses. Many of us, assumes that these giants actually uses the loopholes in the laws and leveraging the Indian markets. Let us understand the actual concept behind this, the idea, the revenue, the peak and the downfall. Through the present of these companies is all time high, but the future is really in the dark. Lets us have a look:
Evolution of the idea
Traditionally, when businesses were not able to sell their products, offers discounts to increase their sales, however businesses were never happy to offer the discounts because it not only sometimes reduces the profit, but also results in losses. Discounts were basically the tool to clear the piled stocks. However, in the modern age, some business thought that if the sales really increases in the discounting period, then why not give discount every time and why not leverage the increase sales every time. And that's how, the discount based model of business came into picture and since, the market is always a price sensitive, then it was a fact that these businesses will attract the customers. They adopted the discounts based models and created a online market place, where anyone can come but the last price will be controlled by the market place by offering discounts and other schemes.
The High Engine Growth
After the evolution of this idea, the traditional cycle gets punctured and this new means of doing business is creating havoc in the Indian markets. With 70,000 crores valuation, flipkart is actually leading at all fronts. Flipkart was doing aggressive marketing, the one day delivery, high discount offering and many more. At the same time, the Amazon, snap deals were also keeping high. Revenues of all these companies are launching, reaching the billions of dollars, and their commission income was also very high. Let us look at their real incomes.
As per the table, flipkart is leading with 179 crores, next is amazon with 168.9 crores and then is snap deal with 154.11 crores. These figures reflect that the battle for the top is really hard and it also suggest that the spending on the discounts will increase to remain on the top and to be in business.
The unfold trap – the biggest threat
Everything looks good when we see these above figures, the valuation, the publicity or anything except when we look at the audited balance sheets of them. The most interesting fact about these giants is that no one has tasted the profits yet. And surprisingly, the company which is on the top at the revenue table, is also top at the losses table. Flip kart is having a loss of 400 crores, second is amazon at 321.3 crores and at last is snap deal with 264.6 crores.
Now, let us analyze these figures, the reason of these big losses, despite having hefty net revenue, is the discount which attracts the customer. The main component of the losses is actually due to discounts and advertising expenses. Flipkart offers it the most and that's why its losses are the maximum. But the main problem is that flipkart, despiting knowing of this fact, cannot do anything because this is what their business model is is all about. If they had to be on the top, then they have to offer much discount to let their prices less in comparison to other competitors.
Due to this trap, these companies creates a deficit between the revenue and expenses and which ultimately met by the VC's funds.
Other problems
Besides these traps, the government is now also in a mood to regulate these e commerce portals. In India, FDI in multi retail is banned, however, these companies are actually doing that online and this is actually a loop hole in the law but it is never that intention of the government and therefore, it will expected that in the next budget, the life cycle for e commerce players will get tougher and tougher.
The Dark Future
With all the pros and cons of these e commerce giants, it looks like the future is very dark. Despite having the high valuation, no business can survive on losses. There will be an end. The discount based model will have to discontinued, otherwise, the stakeholders in future may face a dot comm. Bubble once again.
The Survival
Now, the question is how long will this system survive? Not too long. Actually this battle between the e commerce portals has become a war of funds. Since, the deficit is actually borne by the VC funds, therefore, larger the pool of funds, the longer they will survive.
(Author CA Paras Mehra is a Practicing Chartered Accountant and also co founder of www.Quickcompany.in, a leading website for registering companies and providing single solutions to start ups for all their legal needs in India)
People, in common parlance, may perceive the word Investment differently. To some it may mean having Insurance policies, to some it may mean investing in Equity and Mutual Funds, to some it may mean having fixed income instruments etc. in their portfolio. However, the word Investment is very broad in its meaning and implication. Taking
Investing with a balanced perspective
People, in common parlance, may perceive the word Investment differently. To some it may mean having Insurance policies, to some it may mean investing in Equity and Mutual Funds, to some it may mean having fixed income instruments etc. in their portfolio.
However, the word Investment is very broad in its meaning and implication. Taking a holistic view, Investment should be perceived as something that covers risks reasonably, creates wealth and takes care of you during your Golden Days (Retirement). Quite some number of us, while investing, are more concerned about the amount of Commission (Kick-backs) that the agent/investment advisor will provide rather than being concerned about the quality of investment and the respective returns. What we don't understand is that if we end up losing interest when not adequately remunerated then so can the respective investment advisor. Result is low quality of investments and hence lower returns.
There is one more issue, among others, quite some number of us are not concerned about the fact that we need to have clearly defined investment goals wherein we need to go towards creating an Investment Portfolio which takes care of risk, wealth and retirement.
Basis priority, one must cover risks first, which involves Mediclaims, Term Insurances etc. Please note that investing in Unit Linked Insurance Plans (ULIPs) is not always a good idea as we must keep Insurance and Wealth creation separate.
Then one should move towards wealth creation and retirement planning by investing in a Portfolio which involves fixed income instruments, Equities, Gold/Silver etc. depending upon our investment goals, horizon, risk appetite and all.
Care should be taken that while creating an investment portfolio one must take Income Tax provisions into account so that Return on investment can be optimised.
Last but not the least, be more concerned about meeting your investment goals rather than Kick-backs because if low remuneration demotivates you then it might as well demotivate your investment advisor !!!!
(Author Details- CA Sahil Jolly – Jolly & Co. Chartered Accountants, Contact: +91-9999830077, Email : casahiljolly@gmail.com)
Renting of a building for a hotel, is not liable to Service tax under 'Renting of immovable property' services Jai Mahal Hotels (P.) Ltd.Vs. Commissioner of Central Excise, Jaipur [(2015) 53 taxmann.com 206 (New Delhi - CESTAT)] Jai Mahal Hotels (P.) Ltd. (the Appellant) entered into a joint venture agreement dated August 28, 1985 with
Service tax on Renting of Building for Hotel
Renting of a building for a hotel, is not liable to Service tax under 'Renting of immovable property' services
Jai Mahal Hotels (P.) Ltd.Vs. Commissioner of Central Excise, Jaipur [(2015) 53 taxmann.com 206 (New Delhi – CESTAT)]
Jai Mahal Hotels (P.) Ltd. (the Appellant) entered into a joint venture agreement dated August 28, 1985 with Indian Hotels Company Limited (IHCL) for running hotel business at immovable property owned by the Appellant. The Department contended that the Appellant had provided the taxable service namely 'Renting of immovable property', defined in erstwhile Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 (the Finance Act). Accordingly, demand of Service tax along with interest and penalty was confirmed against the Appellant for the period from June, 2007 to March, 2010.
Being aggrieved, the Appellant filed an appeal before the Hon'ble CESTAT, Delhi arguing that 'hotel buildings' were not covered under taxable service in view of the exclusion clause under Section 65(105)(zzzz) of the Finance Act and even otherwise, there was no provision of service, as there was a joint venture.
The Hon'ble CESTAT, Delhi after analyzing exclusionary and inclusionary clauses under Explanation I to the erstwhile Section 65(105)(zzzz) of the Finance Act, held that as per Explanation 1(d) to erstwhile Section 65(105)(zzzz) of the Finance Act, 'immovable property' does not include buildings used for purpose of accommodation, including hotels. Hence, buildings used for, or as, hotels do not amount to immovable property.
Therefore, renting of a building for a hotel i.e. buildings used for purpose of accommodation including hotels is covered by exclusion clause and does not fall within ambit of taxable service namely 'Renting of immovable property'.
The alternative argument of the Appellant as regards joint-venture was not discussed and the matter was decided in favour of the Appellant relying upon the provisions under Section 65(105)(zzzz) of the Finance Act.
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