Opinion: Budget 2015 - Key Takeaways for Retail, E-Commerce Space
(Hema Palgamkar is a senior tax professional at EY)
Budget 2015 had been keenly awaited as an opportunity for the NDA government to further garner rising investor confidence by delivering an uncommon budget for the common man. Virtually dubbed the 'Make in India' budget, the challenge for Finance Minister Arun Jaitley has been to balance the fiscal deficit numbers with growth, employment and infrastructure spend among other crucial hurdles faced by the economy.
While the Economic Survey appreciated the services sector for being the primary trigger in growth in FY15, importance towards a promising FY16 in the form of reduced vulnerabilities, coupled with a heightened sense of expectation for increase in growth, better infrastructure and steps taken towards increasing manufacturing should better market and industry sentiment at large.
The Finance Minister in his budget speech highlighted the importance of the budget fast-becoming one of the cornerstones to indicate the pace and direction of the economy. Further, the Finance Minister reiterated the need for steady growth and fiscal consolidation by maintaining that the fiscal deficit target for the current year will be achieved, further revising the deficit target of 3 per cent of GDP over the next 3 years and a target of 3.9 per cent for FY16. Also, he reassured the House that the country was past its worst and was projecting a growth of close to 8.5 per cent for FY16, forecasting that India would soon be seeing double digit growth.
With lowering consumer price inflation, which is negative at the wholesale level, coupled with record forex reserves, there certainly is every reason to feel optimistic about the economy in FY16. We have sought to highlight certain specific proposals which may have an impact on the retail and e-commerce industry.
Key policy changes
The Finance Minister through his proposals allocated funds for rural infrastructure development and for easier credit in the agriculture sector. The Finance Minister has also created national agriculture market, to moderate price rise. All these moves should serve to bring prices down.
Further, the Finance Minister announced his intention to incentivise debit and credit card transactions and disincentivizing transactions in cash, thereby creating a cashless economy. The move should indirectly provide a mammoth boost to the sector, especially to the e-commerce industry.
The retail industry employs close to 8 per cent of the country's employment numbers. A major impetus to skill development to boost employment, especially in rural areas, should serve to create an undefined, nonetheless positive impact on the sector at a macro level.
Tax proposals
As regards tax proposals, the Finance Minister has reiterated the importance of GST or Goods and Services Tax and emphasised that it will be put in place by April 1, 2016. It is expected that the GST should eliminate cascading effect of non-creditable taxes.
In a major move, the Finance Minister, with a dual intention to reduce litigation on excessive exemptions and to enable competitive corporate tax regime in comparison with our Asian peers, has decided to bring down the corporate tax rate to 25 per cent over 4 years, which would also align with promoting the 'Make in India' theme embarked on by the government to attract investment.
In a major fillip towards import of intellectual property and the like, the Finance Minister has decided to reverse the tax on royalty and fees for technical services back to 10 per cent which was enhanced just a few years back to 25 per cent by his predecessor. This could be seen as major relief to foreign franchisor companies earning income in the form of royalty and fees for technical services from their counterparts in India.
The Finance Minister has proposed to bring down taxable income in the hands of the middle class common man by introducing measures with regard to enhancing the health insurance exemption, additional pension contribution through a new pension exemption scheme and an enhanced transport allowance for individuals. This should enable a large chunk of population, being middle class, to have a marginally increased spending power.
From a service tax perspective, the rate of service tax is being increased from 12.36 per cent (inclusive of cesses) to 14 per cent, subsuming the cesses (from the date notified by Central government). This will result into additional cost for the retailers due to Cenvat credit restrictions till introduction of GST. Further, enabling provision to levy Swachh Bharat cess at a rate of 2 per cent on all or certain services could be implemented.
Taxable value of service shall include all reimbursable expenditure or cost incurred and charged by the service provider. This should result in to some resolution on ongoing litigations on recovery of expenses by service providers.
The Finance Minister has not proposed any significant reforms through budget 2015 from a retail industry perspective. While appreciating the need for a stable tax regime and reducing corporate rates of tax, the country is sending a very attractive signal to investors worldwide. The only other points that have not been addressed can possibly be the lack of a dedicated industry status to the retail industry and no major movement on provisions relating to allowance of foreign direct investment (FDI) in the e-commerce space. Overall it seems only fair to say that the Finance Minister has adopted a slow and steady, long-term, stable approach towards amending the Indian tax and regulatory regime, at the same time sending out a strong message to the foreign community inviting them to be part of the Indian growth story.
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