Flipkart deal: Walmart to shell out over $1.5 Bn retention tax to India

US retail giant Walmart, which two months ago had acquired 77 per cent shares of home-grown e-tailer Flipkart for $16 billion, will pay up the biggest tax of up to $2 Billion to India's income tax department.

For the retail giant, the deal is very important and it does not want to face any roadblocks in the way of sealing it, said a FactorDaily report quoting sources close to the development.

The amount is a retention tax, which is first deducted at source and paid in advance by a buyer. It will cover the tax on capital gains to be paid by investors in Flipkart. The e-commerce firm has got backing from investors such as venture capital and private equity firms SoftBank, Tiger Global, Naspers, Accel Partners.

Also, as per Section 9(1) of the Income Tax Act, if any foreign firm has more than 50 per cent of its assets in India, from which it derives value, it will be considered an Indian entity and be taxed.

In May, Walmart bought 77 per cent of Flipkart share from existing shareholders, including Japan’s SoftBank, for $14 billion and investing $2 billion of fresh equity.

At present, the deal is also under the consideration of Competition Commission of India (CCI). Many bodies such as CAIT, AIOVA, and Swadeshi Jagran Manch have opposed the deal, alleging that Walmart-Flipkart deal is against the spirit of e-commerce industry of India and it will create a monopoly in the market which will further affect merchants’ business.

CAIT and AIOVA have filed petitions in the court against the acquisition.

Meanwhile, for Walmart, India is a big bet. The retailer sees India’s young population, a growing digital payment ecosystem and an overall positive economic sentiment as an advantage.

The Arkansas-based company, which has 21 stores in India, plans to open 50 more stores in the next four-five years. The retailer operates in 9 states and 19 cities and the future expansion is focused on more or less the same geographies.

It has revenue of around $500 million form its Indian business, added the report.

Flipkart deal also brings Walmart and Amazon, which has supremacy at home turf, against each other. Despite having a superior technology and operational set-up, Amazon is still second to Flipkart in terms of market share.

Both Flipkart and Amazon together command around 70-75 per cent share of the Indian e-commerce market, which is expected reach $200 billion by 2026.