Taxman versus foreign funds, who wins?

The deal is done, Walmart is to buy a 77% stake in Indian online retailer Flipkart for an eye-watering $16 billion which values the loss making company at about $21 billion. Amazon was also in the hunt to buy the company but that would have created a near monopoly. Walmart is locked in a battle for dominance with Amazon in the US, with Walmart buying Jet.com to enter e-commerce business, while Amazon bought Whole Foods, which owns 450 stores in the US, to enter bricks-and-mortar retail. In February, Walmart stocks plunged 10.2% in one day when it reported lower-than-expected profits in the fourth quarter. Walmart is investing heavily in its online business in the US and the purchase of Flipkart is extending its fight against Amazon to India. Walmart has been selling businesses in several countries. It is selling Asda in the UK to Sainsbury's and could not get its business going in China. Getting into India when its growth momentum is picking up, and seeing how Amazon has grown, proved to be tempting. Shareholders in the US were less than impressed as Walmart shares fell 4.2% on news of the deal and "S&P lowered Walmart's outlook to negative from stable". There were protests by groups of traders and farmers against the deal yesterday. Small shopkeepers fear that a fight between two giants, by cutting prices, will put them out of business. They feel that Walmart is planning to set up multi-brand retail stores through the backdoor. However, they have nothing to fear. The present government will not allow it for fear of losing elections and Walmart stores are huge, from 40,000 to over 100,000 sq feet in size with car parks so huge that thousands of people live there. There is no land in Indian cities to build such huge stores and politicians believe that car parks are waste of valuable land. Walmart makes profits, despite very low prices, from selling large volumes. To take advantage of its prices people will need to buy in bulk which means they will need cars to carry their shopping home. With population increasing relentlessly that will not be possible in the next 100 years. So shopkeepers have nothing to fear. The deal needs to be approved by the regulator. But that is surely guaranteed. The government needs vast amounts of money for handouts to win next year's general elections. Tax officials were told to extort Rs 10.05 trillion in direct taxes from an earlier level of Rs 9.80 trillion. Tax officials have offered to help Walmart to withhold taxes before it pays the sellers. If they manage to extract a larger amount of tax than is fair the sellers will have to go to court to recover the excess and, with cases dragging on for decades, the money will have lost half its value through inflation. However, Flipkart is registered in Singapore and is owned by foreign financiers so we expect sparks to fly. Great fun.