Union finance minister Arun Jaitley’s Union Budget 2017 has evoked diverse reactions across the sections. Budget 2017 covered a number of issues to uplift the economy although there was nothing much for the retail sector. However, key reforms were announced that will effect the industry by and large. Sunil Shroff, CEO, Viviana Mall, said, “Governments aim to bring one crore households out of poverty by 2019 is a welcome move. Increasing expenditure towards boosting infrastructure, improving financial system and steps towards increasing foreign investments coupled with reduction in personal tax rate for the middle class would help in increase in the disposable income and spur demand for products and services which would help retailers going forward. Special scheme for creating employment in the textile, leather and footwear industries is a welcome which will help in increasing the talent pool serving these industries.”
Let’s throw light upon key developments.
Boost to textile apparel and footwear sector
Union Budget 2017 has brought good news for leather and footwear sector. The government plans to launch a scheme for the labour intensive leather and footwear sector similar to the existing one for textiles -- to boost its growth and creation of jobs.
No change in service tax
As Arun Ganapathy, CFO at Spykar said, “ There were no changes in the indirect taxes as expected by us, though there were some expectations in the market that there would be a change in service tax.Demonetisation has impacted the retail industry per se. The statement of the Finance Minister that the impact on demonetisation will not spill over to the next year is a welcome one and would augur well for the industry. Though the reduction in corporate tax rates for SME corporate will help smaller retail entities, it is quite disappointing that the rate reduction was not extended to all corporates. Also, we expect a reduction of Merchant Discount Rate (MDR) charged by banks post waiver of duties for manufacture of POS machines and allied spare parts proposed in the Budget. We need to read the fine print as there were few proposals where the Finance Minister mentioned that though they are not included in his speech, they are a part of the annexure to his budget speech.
Removal of FIPB
FIPB was predictably a hinderance not a facilitator. It is certainly a good news for foreign investors who are looking to invest in the country. The move will certainly boost FDI.
Cash transaction above Rs 3 lakh outlawed
In order to curb down the black money, the government is planning to ban all cash transactions above Rs 3 lakh beginning April 1, 2017. This might not be good news for luxury industry in the country. Speaking on same, Sakshi Arora, Director and CEO of Kids Around, said, “The budget has been in favour of every industry, it will help to revive a slowing economy, hit further by demonetisation. The market has slowed down because of demonetisation specially luxury and high end premium brands. Yes luxury brand will be affected by the new rule of cash transaction above 3 Lakhs that has been illegal, but the sales will also be increase due to tax reduction in different income slab. Its good to see how the start up and young entrepreneurs will have the benefits, as they can now claim 100 percent deduction of profits for three out of the first seven years.”
Boost to GST Reform
Kishore Biyani, Group CEO, Future Group shared, “ The Finance Minister has done a commendable job in presenting a balanced budget that neither focuses on garnering more tax money for the government nor on opening up the government coffers that derails fiscal prudence. The budget is in line with the overall trend of making it a predictable and incremental policy announcement, rather than a source for speculation and disruption in the economy. The focus will now move towards ongoing policy measures that the government will be taking through the year – the most important being the roll out of the GST. The industry will keenly watch the final rates and the time period the government finalizes on for the GST regime.”
Rashmi Deshpande, Associate Partner on E-commerce, Khaitan & Co., said, “ Budget 2017 has prepared a solid foundation for another disruption in form of the incoming GST reform. With the clear agenda of honoring the honest tax payers and paving the way for increased digitalisation of the economy, the Finance Minister indicated that technology is going to play a major role in implementation of Government’s clean up agenda. Accordingly, indirect tax on devices related to digital infrastructure is exempted to give a boost the industry.
Nevertheless, contrary to common beliefs, the service tax rates along with excise rates that were pegged to increase to be line with the proposed GST rates, surprisingly remained untouched.
The e-commerce industry should now gear up for an overhaul in terms of its system to keep in line with GST as the Government made amply clear its readiness for the tectonic policy reform.
Boost to start-ups
There are two historic reforms to boost young entrenupres in the country. Abhishek Goenka, Partner Direct Tax PwC India shared his opinion on two individual reforms
*Propose to reduce tax for small companies with turnover of less than Rs 50 cr to 25%,
There was an expectation of an across the board reduction in the rate. Instead, a calibrated approach has been adopted and the reduction is only for companies with turnover of less than Rs 50 crores. I expect that there will be some safeguards against unnecessary arbitrage opportunities by splitting businesses.
*Profit linked-deductions for start-ups reduced to 3 years out of 7 years
The increased period for profit linked deduction for 3 years out of 7 years as against 5 years is welcome, as start-ups are not expected to make profits for the first few years. The ask was for a 10 year period, but extension to 7 years is nevertheless welcome. The exemption from MAT has however, not been allowed, and an enhanced carry over period will not really help start ups from a cash flow perspective. The proposal to allow start ups to carry forward losses inspite of change in 51% of shareholding provided original promoter shareholding continues is a big relief and a welcome move