How MLM Companies making a fool out of Indian people

Multi-Level Marketing or MLM has gained quite a popularity as well as fame in the recent years. The people get attracted to MLM companies in the hopes of getting rich in a short time. It’s not people’s fault to comprehend MLM in such manner. The MLM companies sell dreams to people than quality products, and it is the reason why people get attracted to MLM schemes.

 

So what this MLM is all about?

MLM is also known as Referral Marketing or Network Marketing. Indian people know it by the more general term i.e. Chain Marketing. MLM works on the principal of network or the chain system to be achieved by the independent marketers aka the members of this chain system.

MLM promises to share/pay a specified sum of money to its members if they sell the products to a certain number of people in a given time frame. They are promised to get their share of income when their subscribed members further grow the network. When these growth-members additionally introduce/add new members, all the previous members get their share of the money.

Theoretically, the MLM infrastructure is not harmful or illegal in any sort, but practically it is designed in a way that benefits a very few MLM top level members and company owners/shareholders.  The intermediate and lower level MLM members mostly invest their own money in marketing/promoting the MLM scheme further in hopes that they will eventually make big money just like the top-level MLM members.

 

How does MLM companies actually work?

The MLM hierarchy is also sometimes referred to as Pyramid Marketing. The company introduces the product, which is exceptionally heavily priced for its quality, to first few customers. MLM companies promise these people to gain heavy commissions or percentage if they make members further by introducing the product or the scheme. These newly appended members, when further makes members gain boosted revenues. The image below depicts the modus-operandi of a typical MLM Pyramid Scheme.

MLM Pyramid

 

Is MLM model legal in India?

In a broad sense of understanding, MLM is legal in India. As said earlier, theoretically MLM is legal, but the way it is implemented makes it illegal. MLM model is put in place by companies to leverage their customer base within a very short time while reducing the marketing and advertising costs. It is the members of the scheme who advertise the company’s product (if there is at all) by the word-of-mouth marketing and referrals.

MLM, in reality, should be-
  1. About marketing/promoting a real product that people really like.
  2. It is a form of viral marketing.
  3. It’s a kind of marketing to leverage the sales and, in turn, the company as a whole using common people (members) as advertisers/promoters.
  4. .MLM is utilised by the businesses that want to gain a huge customer base in ridiculously short time along with saving on huge marketing costs.

You must not forget what MLM really mean-

  1. Various MLM companies like eBiz, Herbalife, Amway, QNET have manipulated the MLM model to sell million-dollar opportunities rather than selling the product.
  2. MLM is generally used by the company who does not want to invest in traditional marketing and have the heavily priced or unusable product.
  3. MLM companies promote the model as the income opportunity to its members. But in reality, most members does not earn any revenue at all; rather they barely recover their own.
  4. Legal authorities and RBI have publicly warned and prohibited people from investing in MLM giants like Amway, Herbalife, ebiz and QNET.

Every financial year millions of people, from all parts of India fall prey to mental depression. They succumb to failure as they have invested huge sum or their life’s savings in MLM models. The legal procedures take ages to get them their money back. Still, people with dreams of having the opportunity to cash on, invest the money or become a part of MLM chains and finally lose the money.

 

Loopholes for MLMs under prevailing laws

MLM members or participants are not on job contract with the companies. They do not have any fixed payroll nor do they receive any employee benefits except commissions for growing the business. Whatever the members earn is from the commission they get to expand the network.

Hence, the MLM members cannot demand the rights like that of legally hired employees. It also gets difficult for the legal authorities to protect the members if the need arises.

It acts as a loophole for an MLM to manipulate the members/participants at its own will. MLM companies reserve the right to deny the commissions to its members if they fail to complete the chain scheme in the given time or the given fashion. Commission being the sole source of income in MLM model the members loses their money rather than earning through it.

The majority of MLM participants never make any money from MLM models. They invest their hard-earned income in it in hoping to gain the revenues like the top level MLM members. When they fail hardly in it, they seek legal guidance or try to sue the MLM Company. As said earlier, the MLM participants are not legally hired employees. Hence they end up losing their investment a hard way.

The loopholes present in legal system also work as a facilitator to encourage MLM based companies in India. But a recent development in this field has been a ray of hope for MLM members who have invested huge money and time in this model.

 

How to spot if the business is an MLM Scam

There are many telltale signs which you can use to decipher if the business is an MLM scam. A most widespread phenomenon is that the scam-MLM companies focus entirely on recruiting distributors or resellers than on the product itself. Following are some promising hints to spot such fraud models-

  1. Some MLM models ask you to make big investments in purchasing their products that you can resell to other people. If the MLM business acts this way, it’s wise to stay away because that is how they are making money.
  2. MLM scam models require you to sell their magic products. In the real world, there is nothing as a magic product. It’s a definite hint of scam because if the products are so great MLMs can sell it themselves. They won’t need you to sell them.
  3. Again, if the company is way too concerned to recruit you or others as dealers or distributors, it is the clear sign of a scam. They want you to sell their products and in turn, earn for themselves.

I have given the major hints above to spot MLM scams. There are various other signs which can indicate you very clearly whether the MLM model is a scam. Carefully go through the model’s marketing terms before investing in them.

 

Big MLM players (culprits?)

Regular criticism always surrounds the majority of the businesses that adapt MLM model. On a global level as well as India level such companies frequently face legal trials to gobbling up investors’/members’ promised commissions.

Following is the list of such MLM model companies

1. Amway

Amway Logo

Controversies always surround the brand Amway world over. As the brand operates its MLM business in over 90 countries, it has invested huge amounts of money in India too. It has invested more than 600 Crores in the Indian market. But the sole emphasis of the company is to appoint you as a Distributor for their products (prices for which are very high as per their quality). They put a great emphasis to invest heavily in their product inventory and force you to make further distributors to gain boosted revenues.

In fact, most Amway distributors lose money rather than making any!! The so-called Amway Distributors need to spend heavily in purchasing glossy pamphlets, content material and marketing stuff. They must also attend weekly or monthly Amway meetings/seminars. It’s the hard truth which people generally realise after they lose massive amounts in this MLM model.

Source: Here

 

2. Herbalife

Herbalife Logo

Herbalife is yet another example of MLM Pyramid scam. The company emphasised, again, on recruiting people as its distributor. It does not focus primarily on product quality. The company boasts to have spent multi-million dollars on R&D for their herbal nutrient products. But the bitter truth is the products are mere generic nutrients available for much lesser prices in the market.

Herbalife promises its target customers by selling dreams. Dream, that they could be next entrepreneur with minimal investment.

Herbalife claims that it is not the MLM Pyramid model as it would have collapsed until now it were the one. But the in-depth study reveals that bigger MLMs need much more time to collapse than their smaller counterparts. A lot of people have lost their hard-earned money in being Herbalife Distributor and selling its overly hyped herbal nutrients supplement products.

Source: Here

 

3. eBiz

eBiz Logo

eBiz is yet another MLM scam model operating in India. The company operates in India to promote its old products and packages. It’s an online learning plan. eBiz asks it’s members to join various programs for learning basic computer skills. In return of registration fee or enrollment fee, you are provided with the outdated computer courses which are way far behind the current world of technology. Additionally, eBiz offers its customers with various gift packages with very high prices. These gift packages include (premium) suit lengths, hotel accommodations and office supplies like wrist watches, cufflinks, ties and belts.

How eBiz scam work

The scam is ever present in eBiz whether you opt for its educational packages (which are outdated and non-certified) or its gift packages (which are hyper priced for its quality). eBiz also issues online certificates to its members to clear the tests.

Now, eBiz haven’t registered itself with any real university or distant learning programs which mean that the educational certificates provided by eBiz indicate a scam. The certificate does not hold any value in the eyes of real-world recruiters. Recruiters may even legally penalise you attempting to produce fake educational certificates!!

The same applies for eBiz’s gift packages. The hotel accommodation scheme is also a scam as eBiz doesn’t cover travelling expenses or lunch-dinner for the hotel stays. That’s the reason even present eBizers are straying away from the company.

MLM companies like eBiz gained momentum in India owing to loopholes present in Indian acts for businesses.

But recently the Indian Government has put forth the strict regulations to curb out such money rotating Pyramidal MLM schemes. You will have a fair idea of these regulations in the following part of this discussion.

Source: Here

There are thousands of other MLM companies operating specifically in urban and rural areas of India. These people are least aware of the fraudulent practices MLM models are implementing. The only cure for these companies is to educate more and more people on a national level so that they don’t fall prey to lures placed by such MLM players.

 

Legal regulations to curb off MLM Pyramidal model in India

Thankfully Indian Government has placed new guidelines to control direct selling companies like Amway and various other MLM models to protect the investors/members. The Government has forbidden these companies from exaggerating the profit potentials and charging fees of any kind from their agents.

The Indian Government has also ensured to monitor the activities of MLM companies for any fraudulent activities imparted to its resellers/agents/members/distributors.

The Government wants to promote and grow direct selling opportunities in India without hurting investors’ money. It is ready to put forward mandated rules for the same if required.

You can have a more enhanced insight on it through the link provided. As of now, all the MLM model companies seem to welcome the guideline put forth. It is of much significance how the situation develops once the rules are in place.

Source: Here

Issuing guidelines is clear indication that the Government is well aware of the risks and scams these MLM Pyramid models are creating with nation’s people. It would be interesting to keep a close watch on future developments in this field.

 

Final Words

As of now, the possibilities of ‘bright future’ through MLM model are almost nil. With new Government regulations in place and people awareness, it will be interesting to watch how the situation develops further.

Along with the guidelines to protect people’s invested money in MLM networks, there must also be a directive to monitor the quality of products these MLM models are selling. As discussed earlier, almost all the products promoted through this channel are overly priced on the name of R&D or exceptional quality which is just a myth.

I hope to shed enough light on current MLM practices big MLM players are implementing. My efforts will be fruitful if this post reaches prospective MLM targets in time so as to minimise their financial losses.

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Significance of ‘GST 2017 India’ on Software Outsourcing Industry

GST 2017

The Indian government has proposed a revolutionary taxation scheme called GST 2017, which will be eliminating all the indirect CESS and VAT taxes. The motive to eliminate these indirect taxes is to bring uniformity in tax system across all the states and territories of India. The major benefit is pertinent to small and mid-sized service industries and businesses.

There is also an exemption of GST for exports under some categories. But if you are a freelancer/service provider, earning money in foreign denominations working through UpWork, PeoplePerHour or any of such online platforms then you are in for good news. Let’s have an insight on these particular provisions in GST 2017.

GST for IT/Software/Tech/Social-Media & Outsourcing Industry

If you are a firm or a freelancer earning money by providing your services overseas, GST 2017 will surely entice you. GST 2017 exempts all such industries and services from paying any taxes. Although, there are two conditions. In simple words, if the service industry or a freelancer earns money from foreign sources there is no upper limit for it, and the income is going to be free from paying tax under GST. But there surely would be some capping crossing which you will be needed to at least file your income to the Government, though not pay tax on it. The minimum income after which you need to file your income will be revealed by the Finance Ministry soon.

Whereas, if you earn money by providing services to Indian clients, the income up to Rs.20 lacs will be free of taxes (Source here).

Let me clear it with two examples-

Example 1

Suppose you, as an individual or firm, have an annual turnover of Rs. 1 Cr and 80% of your turnover constitute services provided to foreign clients and 20% income is from services rendered to Indian customers.

So, as per GST 2017 your 80% revenue or Rs. 80 lacs will be entirely free of any taxes owing to its foreign origin (Source here). Remaining 20 lacs are earned from Indian clients so still this money will be exempted from any taxes (Source here). Along with that, you would receive a tax credit for the 80% of your foreign income which you could use to redeem on your other revenues.

 

Example 2

Conversely, consider the same example above only with the difference in your Indian income. Let’s say you earned Rs.25 lacs from Indian clients, so as per GST 2017 you are liable to pay tax on it. But, as you have also received a tax credit on 80 lacs of your foreign income you will be eligible to claim it on additional Rs. Five lacs that you have earned above the specified limit of revenue coming from Indian sources.

Currently, the rate of the tax credit is not in place as per GST 2017. But very soon it will be revealed. The tax credit is issued to encourage industries/service providers to bring in the foreign currency in the country. The Government saves vast sums of money on currency conversion when you bring the external currency through your business. Hence, they pass a fraction of their saving to you in the form of Tax-Credit.

 

Big catch when you get online income

When a firm or an individual work online and earns money from foreign sources they get the money after deducting the currency conversion commission. The gateway or the payment processing firm (mostly intermediary) deposits your fees to your concerned bank account. But the catch here is that most of these multinational payment gateways have bank accounts in all the major countries, including yours. So when they transfer your fees, they do it from their bank account present in your country. It is where you need to worry. As the money you are earning is not coming from the foreign source but your own country’s another bank account.

If a government scrutiny initiates, it would be fairly difficult for you to prove the foreign origin of your income. In such cases, you can request for the FEMA certificate from your foreign-currency-processing gateway.

The Foreign Exchange Management Act, 1999 (FEMA) is put in place by Indian Government to facilitate the foreign currency exchange for firms and individuals. Under this act, you need to provide a certificate issued by your payment processing company. This document includes all the details and technicalities regarding all your past payments. It is through this certificate you can prove the foreign origin of the money you are earning.

It is quite advisable, especially if you are working as a freelancer, to get FEMA certificate.

 

Final words

GST 2017 has made it absolutely worth providing your services to national as well international clients. There are few technicalities you should take care of though. Have FEMA certificate and keep an eye out for the Tax-Credit percentage which is the process of finalisation.

Apart from these, GST 2017 is going to be an ideal facilitator for Service Industries and freelancers.

 

Sources-

http://economictimes.indiatimes.com/wealth/tax/freelancers-have-it-easy-now-with-income-tax-return-4s/articleshow/51421100.cms

https://cleartax.in/s/impact-analysis-freelancers-under-gst

http://trak.in/tags/business/2017/06/06/gst-freelancers-small-business-owners-questions-answers/

http://www.gstonlinefiling.com/tax-exemption-for-freelancers/

https://yourstory.com/2017/06/gst-hack-services-startups-freelancers/

https://taxmantra.com/import-and-export-under-gst/

 

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