Bad news for shoppers, hefty online discounts might just stop
With the festive season approaching, most of us are looking forward to buying things at heavily discounted rates on e-commerce sites. It has been the trend for the past few years, as this is the time when online retailers fight for the market share. However, this year the discounts might not be that high. It all depends on an income tax order. Here's more.
One of the predominant methods, used by e-commerce platforms, to lure customers is to give hefty discounts on strategic occasions. Till now, the firms have been classifying it as a marketing expense and deducting it from revenue, which naturally makes them show huge losses. However, last year an assessment order was issued, which instructed them to reclassify marketing expenditure as capital expenditure.
The tax department justified its stance by saying that these marketing costs, by e-commerce firms, should be considered as a capital expenditure because they are creating intangibles, which have the potential of bringing in future revenue. If this assessment order stays in place, it would be impossible for e-commerce players to continue with their current discount spree.
Flipkart and Amazon had approached the Commissioner of Income Tax (Appeals) last month to seek reversal of this order but an immediate decision on it was not taken. According to experts, this order will create a major disruption in the e-commerce market because, if not retracted, it will radically change the way how these businesses operate, in the near future.