Putting an end to regulatory logjam

As the government gears up to regulate the e-commerce business, the industry has to step up its compliance effort

It is a paradox that is hard to miss. As e-commerce companies nudge each other to raise the bar each day on valuation of their businesses, cash registers continue to ring with each online discount sale. Clearly, customers love it.

According to estimates by internet giant Google, the value of India's fledgling e-com business is estimated to go up from $20 billion in 2015 to $70billion by 2020.

At the same time, government agencies across the states are currently grappling with regulatory issues surrounding e-commerce businesses - on issues as diverse as taxation, pricing, payment process, registration of businesses, accountability and liability for goods and services offered, among other things. The Uber incident in Delhi is the latest trigger to the oft-repeated call for regulating the burgeoning e-commerce business in India.

Legal experts point out that law does not distinguish between physical operations of a business from an online operation. The risks and liabilities are the same for both, says Shivpriya Nanda, Partner, J Sagar Associates. Indian laws are outdated when it comes to app-based businesses. For instance, the Motor Vehicles Act of 1988 does not contemplate provisions on online aggregators. An app-based service provider connects a customer with the physical service provider. Legal experts say the problem starts when the customer is under the impression that the app-based service provider is also the physical service provider. According to Nanda, there should be clarity on who exactly is responsible for the service.

With the emergence of online aggregators, the Motor Vehicles Act or the rules and schemes thereunder should have been suitably amended or a circular should have been notified to clarify the legal position on the subject, notes Ganesh Prasad, partner, Khaitan & Co.

Most legal experts feel that Indian regulators need to be more proactive, particularly with respect to technology-based products, given the rapid rate at which the sector is evolving. Interestingly, even the Road Transport and Safety Bill, which is proposed to be passed by Parliament soon, does not have clear provisions regulating online aggregators. Further, exchange control regulators also need to amend regulations to suit requirements of technology-based services.

Stephen Mathias, head of technology law practice at law firm Kochhar & Co, feels there might not be a need to re-write the statute books. "Existing rules may need to be tweaked to deal with new situations, whether online or offline. Authorities should look at the larger picture, rather than be caught up in technical issues," says Mathias.

When it comes to taxation, Sagar Shah, international liaison partner & head - indirect tax & regulatory, BDO India LLP, feels many of the issues stem from the fact that India does not have any specific law to regulate e-commerce. "The various tax laws do not have any enabling provisions to cater to the complex and rapidly evolving e-commerce space," says Shah.

The proposed implementation of dual goods and services tax (GST) could come as a big boost for e-commerce sector, alleviating some of its existing tax-related challenges. "With GST in place, the e-commerce players would be able to structure the supply chains on business considerations and indirect taxes would not be a decisive factor," says Shah.

Legal experts say e-commerce players would also have to shore up spends on legal and regulatory compliances. Agrees Umesh Hora, chief financial officer, Zomato, the restaurant search and discovery service, with presence in 19 countries and in excess of 100 cities. Hora leads a seven-person legal team at Zomato, and is assisted by law firms on a retainer basis in different countries. Before entering any new market, Hora's team has to take care of the provisions of the IT Act, intellectual property rights Acts, data protections Acts and guidelines, user terms and conditions, and advertising laws, which vary from country to country.

Even as the government gets its act in place when it comes to regulating the e-commerce sector, the industry, too, has to step up its focus on compliance, say legal experts.