India Regulatory Brief: FDI Reform for B2C E-commerce Unlikely, New VNO License Proposed

Posted by Reading Time: 4 minutes

Regulatory brief logo

FDI Cap for B2C E-commerce to Remain

Last week, Commerce Minister Nirmala Sitharaman met with public and private sector representatives to discuss foreign direct investment (FDI) for e-commerce in India. Local observers in the media speculated that the discussion might lead the government to raise, or even lift, the FDI cap on business-to-consumer (B2C) e-commerce. However, domestic e-tailers predictably voiced their opposition to any such reform, and while the discussion did not produce any concrete outcomes, the government has long sought to protect India’s booming B2C e-commerce industry from foreign competition.

Although the government allows 100 percent FDI in business-to-business (B2B) e-commerce, it does not allow any FDI in B2C e-commerce. Many foreign e-commerce companies, such as Amazon and Alibaba, have shifted from an ‘inventory model’ to a ‘marketplace model’ to sidestep this FDI cap and access the Indian market. However, the marketplace model is cost prohibitive for many small and medium sized e-tailers based abroad. While many government officials and domestic e-tailers remain opposed to reforming the B2C FDI cap, domestic industry groups, foreign retailers, and some foreign governments have encouraged the Indian government to lift the cap.

Professional Service_CB icons_2015RELATED: Pre-Investment and Entry Strategy Advisory
New Licensing Proposed for VNOs

The Telecom Regulatory Authority of India (TRAI) recently recommended the creation of a new license for virtual network operators (VNOs). TRAI specifically recommended that the Department of Telecommunications develop a licensing framework for VNOs, which are companies that provide management or network services but do not own telecommunication infrastructure.

In its recommendation to the department, TRAI suggested that the licensing cost for VNOs start at Rs 15 lakh (US $23,000) for companies that want to provide a limited number of services. TRAI further suggested that companies that would like to provide country-wide internet services should pay Rs 1.25 crore (US$ 197,000) for a license, while companies that would like to provide all VNO services should pay Rs 7.5 crore (US$ 1.18 million) for a license.

At present, VNOs are not subject to a license specifically for their voice, data or video services. Based on the nature of their operations, many companies that qualify as VNOs apply for internet service provider or unified licenses to conduct business in India. However, industry experts note that the licenses, particularly the Unified License, are cost prohibitive for many VNOs. Domestic telecom providers will likely oppose TRAI’s  proposal, but a new license regime would represent a good opportunity for foreign VNO companies that want to do business in India.

Professional Service_CB icons_2015RELATED: Business Advisory
Black Money Bill Passed

Last week, India’s parliament passed the much anticipated Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015. Under the new law, Indians that have undeclared assets above Rs 5 lakh (USD $7,850) abroad are liable for a flat 30 percent tax, a 90 percent penalty and up to 10 years in prison. Although the law does not take effect until April 1, 2016, the government is reportedly setting up Central Board of Direct Taxes (CBDT) offices in Delhi and Mumbai to process claims from non-compliant taxpayers during a clemency period. Local media reports state that the clemency window will remain open for two to three months; non-compliant taxpayers will be eligible for a 30 percent tax and a 30 percent penalty during this period.

 

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 

An Introduction to Doing Business in India 2015 (Second Edition)
Doing Business in India 2015 is designed to introduce the fundamentals of investing in India. As such, this comprehensive guide is ideal not only for businesses looking to enter the Indian market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes. We discuss a range of pertinent issues for foreign businesses, including India’s most recent FDI caps and restrictions, the key taxes applicable to foreign companies, how to conduct a successful audit, and the procedures for obtaining an employment visa.

IB Nov issue smallEstablishing Your Sourcing Platform in India In this issue of India Briefing, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Taking Advantage of India’s FDI Reforms In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.