Accounting, taxation and risk management: Q&A on best practices [#IRE 2014]

No doubt, Ecommerce has a huge potential to offer growth and certainly there is a long way to reach the saturation point yet, atleast in the developing economies like India and China. But still, many retailers have not yet taken the online plunge, primarily due to the lack of adequate knowledge about the online medium, particularly the lack of accurate information related to Accounting, Taxation and Risk Management.

Given that Ecommerce transactions are not bounded by geographical boundaries, new entrepreneurs in this field find it hard to understand the state government laws especially for interstate/international consignments. For example, if the website is hosted in USA, product is procured from China, shipped out from Europe and delivered to India – there is little clarity about how taxation should happen? Indian laws have not been properly revised to cater to the changing eCommerce industry – making the situation worse.

At iamWire’s Internet Retail Expo 2014, Raman Gulati and Amit Garg, Director and CFO Homeshop18 respectively, engaged in a candid Q&A session on topics like finance, taxation, FDI in eCommerce and much more. Here is a snapshot of few questions asked to them.

Q. How to take your business online?

A. Come up with a concept. Have a clear demarcation between finance, technology and the business aspect of things. Make a business document that contains every little detail. Half your work is done.

Q. If an Indian Ecommerce venture is selling in US, than does he need to get its brand registered their too? Where the sale is happening- in India or US?

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A. Its recommended to get a brand registered in US or any other country. If you abide by the import laws, you can make sure you are not sued.

Q. Its important to have the backend processes in place first. What exactly it means?

A. You need to have a tracking mechanism within your organisation to track the orders made. Avoid thinking visually, develop a mechanism to trace authenticity of orders placed. Wait for 3 additional months if you have to, to figure out your processes, logistics, etc.

Q. What are the taxation issues an eCommerce venture might have to deal with, especially when it involves inter state transactions?

A. Tax rates in India change from state to state. You need to levy the taxes from the state you are shipping from and not as per the state you are shipping to. When displaying products, it is very important to make a master of taxes at SQ level and not product level. Also, Invoices are nothing but displays, you play on the perceived value of product, so it’s most important to master the backend.

Q. How in the online space the retailers charge a VAT?

A. In the online space there are a very few websites that very clearly tell you the real cost, so it is okay for retailers to charge a VAT. But if there is a charge at anything less than Rs. 1000/- then its happening from state to state.

Giving out a few tips at the end of the session Raman said, “Maintaining good relationship with Courier company is important, secure yourself and only then go ahead for COD. And if, you are in a marketplace and warehousing as well, be cognizant of the fact that you don’t get involved in the excise duties.”

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For an overview of the social media discussions around this session, see this Storify. You can also watch this three-minute trailer or the full video.