Discounting e-commerce: Taxing online discounts is illogical

The income-tax tribunal’s decision to deny domestic e-commerce player Flipkart’s appeal against the tax authorities reclassifying marketing expenditure on discounts as capital expenditure betrays a misunderstanding of the basics of business. At the centre of the dispute is the treatment of discounts. Globally, companies treat discounts as revenue expenditure, which are deducted from sales revenue before computing taxable profits. The rationale is that discounts constitute marketing expenditure, incurred to build market share or a brand. For Flipkart, the income-tax department has argued that the discounts are creating huge intangible assets for the company, and, as such, are not costs but