Post Walmart deal, Flipkart's ESOPs valued at $2 billion

Not an easy path

U.S retail giant Walmart's $16 billion investment in Flipkart for an initial stake of approximately 77% will not only make the founders Sachin Bansal and Binny Bansal billionaires but will also provide blockbuster exits to the investors. The reason for this potential flip-flop is being attributed to a hefty tax burden that a short-term exit from Flipkart will attract for Softbank.

"The $16 billion acquisition by worldwide e-commerce retail giant Walmart of Indian e-retail Flipkart facilitates the backdoor entry of foreign capital to take over India's huge multi-crore retail trade sector", said the CPM Politburo in a statement.

F Flipkart was founded in 2007 by the former Amazon executive Sachin Bansal along with its IITian batch mate Binny Bansal.

The tax burden of the exit is being attributed as a major consideration for SoftBank, as its investment in the Indian ecommerce unicorn isn't even one year old.

The CPI-M said it was common knowledge that Walmart sourced its products from global markets and now these will be sold in India, further destroying the small scale and medium scale sector which is the largest provider of employment after the agricultural sector.

Sellers have always been at loggerheads with online marketplaces Flipkart and Amazon on several issues including discounts sharing, commission margins, and alleged edge afforded to in-house vendors.

Since the profit is made from shares that were held for more than two years, it would attract a long-term capital gains tax of 20 per cent plus surcharge and education cess, effectively wiping away a fourth of the profit.

He further assured sellers that Flipkart and Walmart would maintain distinct brands and operating structures after the investment.

Signed between India and other countries, a Double Taxation Avoidance Agreement (DTAA) ensures investors don't end up paying taxes on income earned from the source country and also in the country of residence.

SoftBank may hold the Flipkart stake for 6-12 months with a view to avoid the short-term taxation problem, the report added.

According to Sanchit Vir Gogia of Greyhound Research, the deal would open up Indian opportunities for global Walmart sellers while mom-and-pop (kirana) stores and Flipkart's private labels could reach a global market via the USA retailer.

The Flipkart group, which includes fashion portals Myntra and Jabong, has a combined market share of over 39.1 per cent compared with Amazon's 31.1 per cent in the Indian online retail space, according to a recent report by Forrester Research.

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