Flipkart and Walmart will maintain distinct brands and operating structures post this investment, he said promising that Flipkart will continue to remain a marketplace where sellers from around the country can connect with customers. 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 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. "India is one of the most exciting markets in the world", said Bob van Dijk, Group CEO, Naspers.
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. There have been a lot of developments since the news broke out, from Sachin Bansal quitting Flipkart to the latest news that about $500 million is being outlined towards liquidity of employee stocks.
"eBay has notified Flipkart and Walmart that it intends to sell its holdings in Flipkart, which will represent gross proceeds of approximately $1.1 billion".
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Walmart has retained the Flipkart management led by Binny Bansal while Sachin quits from the company.
"The situation is still very fluid", a source familiar with the development told ET.
On Wednesday, the Walmart chief executive officer, Doug McMillon who was in India said that Flipkart will continue to operate as a separate entity. "Soft-Bank's fund is registered in Jersey and they are suffering a huge tax liability because there is no DTAA protection with Jersey".
"Since the deal has a greater ramification on India's retail trade, a closer scrutiny is certainly warranted". To avoid the short-term taxation issue, SoftBank may hold the Flipkart stake for 6-12 months.
CMR said the government should seriously consider allowing existing offline retail giants to collaborate with big global retailers so as to enable them to withstand competition from the online operations of WalMart and Amazon in India. He has already met with representatives from Alibaba and Walmart as well as Jeff Bezos, founder and CEO of Amazon, in this regard, according to media reports.