Budget 2015: Prediction for retail sector

Being the first full Budget of the Narendra Modi Government, it serves a great opportunity to drive economic growth against the challenges of fiscal deficit.
Budget prediction for retail sector

Like the earlier years, Budget 2015 holds great importance for the retail industry.

Being the first full Budget of the Narendra Modi Government, it serves a great opportunity to drive economic growth against the challenges of fiscal deficit.

Especially for retail, the progrowth reforms would be eyed with considerable enthusiasm by industry players and prospective foreign investors. As retail accounts for 14-15 per cent of India’s GDP, the Government should lay out clear roadmap for fuelling growth in one of the big ticket sectors, which could set the mood for economic development of the nation.

Highlighting some expectations and recommendations for the retail sector:

Accordance of industry status

One of the long-standing expectations is to accord retail sector with industry status. Currently, it is governed by the Ministry of Commerce and the Ministry of Consumer Affairs. Separate nodal ministry, which focuses on driving reforms and addressing bottlenecks could prove to be vital in the long-term development of retail sector.

Rollout of GST and mending indirect tax inefficiencies

Rolling out long pending GST could play a significant role in reducing inflation by curbing cascading effect of taxes. (Views expressed are personal) GST is touted as the biggest tax reform that would lift the GDP.

Further, the Government should streamline indirect tax regime through elimination of inefficiencies, viz non-creditable service tax on commercial rent and dual taxation (VAT and service tax) on franchisee fee.

The Government may also consider providing relief to small retailers through service tax exemption on commercial rent.

FDI clarifications on single brand retail trading As per FDI policy for SBRT, the brands should be owned by nonresident. However, there is no clarity on FDI in SBRT of Indianowned brands. The Government should clarify that FDI policy for SBRT applies to Indian-owned brands.

Incentivising capital outlay for infrastructure Currently, investment-linked benefits are provided only for specified businesses such as setting up and operating cold storage facility. To promote investments in infrastructure, such incentives should be extended to retailers investing in back-end infrastructure as part of business.

Employment-related incentives

Currently, profit-linked incentive for triggering employment opportunities is limited to industrial undertakings. Similar provision is required for retail sector, which boasts of providing around 35 million job opportunities.

Transfer pricing ambiguities

Costs associated with marketing, franchisee fees, advertising, sales promotion, and royalty are common in retail, but often suffer prolonged transfer pricing litigation. To address this, the Government should provide clarifications on transfer pricing issues faced by retailers.

Increase in disposable income

Given the rise in inflation over the years, the budget should provide relief to the populace through increase in slab-rates, deduction for interest on housing loan and 80C deductions. This would increase disposable income and spur consumption.

While the retail industry is expecting the above, it will also be interesting to understand how the Government views the shift towards online marketplaces which are changing the face of retail.

In all, it will be interesting to see what Arun Jaitley has in mind to push the agenda on economic reforms, while we hope he does not burden retailers with new levies.

Paresh Parekh,Tax Partner (Retail & Consumer Products), EY

(Views expressed are personal)

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