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#NAMApolicy: Ecommerce regulation, taxing, competition, data sharing and more

This report is the first in our series covering the discussion on the different aspects of eCommerce policy and the impact it has on every aspect of the internet, including digital products and anti-competitive issues, privacy, protectionism. Read the second here. The discussion was held on October 10, in Bengaluru.

“Products and services are not easy concepts to regulate. Though the whole world has a challenge, grappling with how to regulate this— not just from the taxation perspective, but generally from a lot of perspectives,” said Harshita Thammaiah, from the legal team of Xiaomi India as she responded to a question about how the ecommerce policy looks at digital goods.

What follows is a paraphrased, not verbatim, transcript of the discussion, edited for brevity and clarity.

Regulation of eCommerce operations

  • Regulation of digital goods: Products and services are not an easy concept to regulate. Under GST, ‘digital products’ are everything software-related, and can be delivered in a digital format. But ‘digital service’ is not a digital product. The jurisprudence of actual distinction between these two is always blurred. (Harshita Thammaiah, Xiaomi)
  • HSN is Harmonised System of Nomenclature for doing trade worldwide. It is a trade classification where you classify a good and put it under that category to get rates easily, a code all countries have agreed to. GST talks about HSN and fetters without actually defining it properly and laying down basic framework of regulation. For example, the kind of features  in a phone and categorization of whether an app is just a product or a service is not as simple as it sounds. It depends on the various kind of features that is being offered. (Harshita Thammaiah, Xiaomi)
  • The distinction between products and services is blurred on the internet as compared to what it was earlier- tangible vs intangible. Right now, intangible stuff, like a software, is also treated as a product. But in jurisprudence, you consume service, but it is not tangible. And therefore, tangibility becomes an issue for distinguishing between product and service. And due to technological evolution, the distinction will always be blurred. And the policy does not say much about how it wants to regulate digital economy. (Harshita Thammaiah, Xiaomi)

Anti-competitive issues 

  • The policy does not define eCommerce. At the moment, eCommerce is synonymous with the internet and the lack of clarity bleeds into the kind of solutions they’re seeking. The Competition Act, with its principle-based framework, does have the capacity to address this issue but the Competition Commission of India (CCI) does not seem to have done enough studies to focus on the aspects of traditionally multi-sided markets. For eg: Facebook, Google and Amazon are monopolies in the most basic sense. The policy will focus on things like predatory pricing and the need to protect domestic industry from deep pockets of foreign investments but from a principle standpoint, it also needs to look at consumer welfare in terms of prices and choice. Monopoly means that there is a lack of competition amongst players in the market but there is no consistent stand in India on this. However, the act seems quipped to deal with the abuse of monopoly power or dominant position of any particular player. (Divij Joshi, Vidhi Centre for Legal Policy)
  • Predatory pricing and relevant market and substitutability: Relevant market comprises of two things- relevant product market and relevant geography market. Offering of discounts does not automatically mean predatory pricing. But there are cases of imperfect substitutes such as Ashish Ahuja vs Snapdeal. Ashish Ahuja was stopped from selling Sandisk SD cards on Snapdeal because Snapdeal had an agreement with Sandisk about certain authorised resellers authorised to sell these products. Ashish Ahuja went to the CCI calling it anti-competitive. However, the CCI said they cannot define relevant market as either offline or online market because consumers will go wherever they find the product at a lower price. (Neela Badami, Samvad Partners)
  • Taxation challenges: The domestic law does not address international cross-border platform… The other challenge is the regulation of international payment gateways as very few payment gateways can collect payments outside of India. The only way to enable it is on international credit and debit cards. (Harshita Thammaiah, Xiaomi)
  • Need for a separate e-commerce law:  There is a huge overlap in the e-commerce policy and the data protection bill, which is an overarching legislation which takes care of personal data protection. (Harshita Thammaiah, Xiaomi)
  • The CCI looks at competitive concerns mostly through price. Even when you’re looking at combination of price and data from dominance perspective, it (CCI) primarily looks at what its effect of the competition would be on the market in terms of increase of prices in the market. (Divij Joshi, Vidhi Centre for Legal Policy)
  • The CCI has not analysed combinations in terms of addressing data monopolies. We can’t think of dominance in terms of prices only. But when Google has all of the user data, which then bleeds into all of its horizontal applications, is that stopping competition from arising on its other end? … Therefore, data presents that kind of competitive barrier. The e-commerce policy tries to address this by saying that we’ll share all the data that Indian startups have and foreign ones don’t. It’s in contradiction to what the Srikrishna report and the bill say. If it’s non-anonymized personal data, that’s scary. Our policymakers really need to think about what the effects of data use are going to be beyond helping commerce or commercial ventures out. (Divij Joshi, Vidhi Centre for Legal Policy)

With respect to data, it’s important to look at what’s going on in the global arena. In Buenos Aires last December when the WTO met, India and other countries made certain vociferous representations against what the developed world is trying to push as part of the agenda of the WTO… India said it won’t be a part of that group, because it does not agree with how the developed world is pushing its agenda in eCommerce. Developed countries are pushing for no data localisation. They want data to be able to be moved across borders. Whereas India is coming from is a more protectionist mode… That’s driving some of these protectionist statements and the privacy lens is getting lost there. (Neela Badami, Samvad Partners) 

  • You basically need to identify the taxable event, for a company to pay taxes… However, if  for instance, Flipkart is selling some of its own products like a brand called ‘Billions’ the tax treatment of that is going to be different. Therefore the tax slabs and the tax rates differ, and broadly, the identification is done on the taxable event. (Harshita Thammaiah, Xiaomi)

Data sharing

  • The policy is completely silent on what it means by “big companies will share data with small companies”. It is incredibly dangerous. It wouldn’t happen if the draft data protection bill gets passed. Data sharing is an important foundational step on how to introduce more competition into the market of platforms. Things like introducing portability of data, say from Amazon to Flipkart, so both know their preferences equally. The network effects that come about from one company holding all your data, will then be diminished to create a  more competitive ecosystem. (Divij Joshi, Vidhi Centre for Legal Policy)
  • There’s a concept in competition law, but not in Indian competition law. It’s possible that one player can control some important aspect of all the critical public infrastructure that everybody else needs access to, even those competing with this player; but it’s not being given…. But given the specific facts, it may be a worth argument worth making to say: this amount of data is critical public infrastructure. That it may be an argument to be made in the context of Google Maps but may not apply in the context of a Walmart. (Alok Prasanna Kumar, Vidhi Centre for Legal Policy)
  • Cartelisation & Competition Act: Cartelisation, large enterprises coming together, fixing prices, it’s definitely prohibited, and can be treated as such under the Competition Act. The difference is, in this particular example, Ola and Uber are not forming a cartel where they’re deciding to fix prices. (Neela Badami, Samvad Partners)

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