Amazon India’s Losses Mount – Showing Why It Pays So Little Tax

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Amazon India is losing money hand over fist in its marketplace section. That’s the part where other third parties use the infrastructure to reach the consumers. Sales are well up, revenue is soaring – but so are losses up and soaring. This isn’t unusual at Amazon, it has to be said. This is actually the way the firm operates in general. It also explains why it pays so little in taxes upon its revenues, this is a reflection of the basic business strategy:

Amazon is fast becoming the country most popular market place, however it is also losing money fast. The company suffered a loss of Rs. 6,287 crore for the FY 2017-2018 from Rs. 4,831 crore compared to last year. The venue for Amazon in India however, grew 54% to Rs. 5,018 crore from Rs. 3,257 crore.

That’s revenue, obviously, not venue. So, expansion, increasing losses. They’re not exactly growing into their overhead, are they?

Amazon Seller Services Pvt. Ltd., the marketplace arm of U.S retail giant Amazon.com Inc, that assists sellers to sell their products online in India and globally, has suffered an increase in net loss by 30% in the financial year 2017-2018 compared to the previous year.

They’re, by one measurement, losing more than all the others in the market:

Amazon lost 20% more than Flipkart, Paytm Mall and Shopclues combined losses in FY18

If the losses are buying market share then obviously Amazon is doing well by that measure.

But the real interest here is in the joint criticisms of companies these days.

One is that companies just aren’t investing. They sling the money back out to shareholders instead of using it to expand the business, pay the workers more, improve offerings and invest. The solution to this is, according to the likes of Elizabeth Warren, that companies should be taxed more.

So, Amazon does exactly this. It hardly even makes a profit and it has certainly never paid a dividend. Instead, all the money and profit made in any one period is spent again in that same period on expanding other areas of the business. We could say, perhaps, that the relatively developed books business of Europe or the US is having its profit diverted to this investment in building out the Indian business. That might not be quite accurate as a description of the legalities but it’s a useful enough mental image for us.

That is, Amazon is reinvesting, it is expanding the business, investing – and the next complaint is that it’s not paying enough tax. So, it must be taxed more.

It’s almost as if the complaint is just that the politicians want more revenue to spend, isn’t it? Rather than their having any logical or robust critique of modern capitalism. Don’t invest and you must pay more tax, invest and you must pay more tax.

But, you know asking for logic or consistency from politicians is akin to nailing jelly to the wall.

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Richard M

I just read an interesting article over at Forbes a few days ago. (https://www.forbes.com/sites/walterloeb/2018/11/01/amazon-is-biggest-investor-for-the-future/ )

Amazon spent $22.6 Billion last year on R&D and the next biggest spender Was Alphabet (Google) at $16.2B. The next two were MicroSoft at $12.3B and Apple at $11.6B

I found it interesting that they outspent Apple almost 2-1.