Opinion: Retail Industry Eyeing Big Bang Reforms
(Hema Palgamkar is a senior tax professional at EY)
With the business sentiments of Indian and foreign investors soaring, it's time for the Modi Government to lay down a clear roadmap for economic growth of the country. It's time for Finance Minister to unveil the pro-growth reforms which the India Inc has been yearning for.
Retail industry, specially, are eyeing some big bang reforms that will not only boost existing CAGR of 15 per cent but also help eliminate obstacles viz inadequate physical infrastructure, inefficiencies in supply chain, complex regulatory environment, that has been long plaguing the industry.
Finance Minister also needs to pay heed towards demands of e-commerce industry which has witnessed a phenomenally high growth in the last 3 years, making it one of the fastest growing sectors. Retail players have time and again emphasised the need for foreign capital, expertise and knowledge in inventory-based models that will take e-commerce industry to another level altogether. Further, Finance Minister should focus on improvement in technology to ensure that e-commerce continues its growth trajectory.
The right pushes given to retail and e-commerce industry would also fuel manufacturing industry and promote Prime Minister's ambition of "Make in India", increase consumption, thereby, stimulating economy in the long run. There is not an iota of doubt that Finance Minister has an incredibly challenging task to stand up to the expectations of various stakeholders.
Listed below are some other major, long hauled industry expectations and recommendations from the Budget 2015.
| Expectations | Recommendations |
| Industry status | Its time a prodigious industry like this is reinforced with an independent ministry to address the ever expanding industry-wide issues, to streamline growth and provide better access to funding. |
| Introduction of GST provisions and resolve indirect tax inefficiencies | Early implementation of GST would eliminate cascading effect of taxes and remove other inefficiencies currently faced by retailers (ex. - Non creditable service tax on commercial rent, Excise on manufactured goods and CST on interstate procurements). FM may also consider providing relief to small retailers through service tax exemption on commercial rent. |
| Friendlier tax slabs | Increase of disposable income in hands of lower/middle class consumers, would enable greater purchasing power, leading to increase in demand and growth of industry. Therefore, FM should realign income-tax slabs of lower/ middle class population. |
| Investments-linked incentives for the betterment of retail infrastructure |
Investment-linked incentives for setting up and operating cold storage facility are available only to specified businesses. These incentives should be extended to retail sector for promoting investment in warehousing facilities, etc. Further, the Government should provide further tax incentives in order to boost investments in logistics infrastructure and technologies as products can be delivered faster and at a more efficient cost by e-commerce companies. |
| Employment related incentives | Profit-linked incentive for triggering employment opportunities is limited to industrial undertakings. Similar provision is required for retail sector which has huge potential of generating employment for millions. |
| Transfer pricing ambiguities | Currently, retailers are incurring huge costs on prolonged transfer pricing litigation relating to annual marketing fees, franchise fees, advertising and sales promotion expenses, royalty payments, etc. FM should seek to bring clarity and certainty on these issues by providing guidelines and clarifications to reduce costs relating to litigation on such matters. Further, FM should also announce rules for rollback scheme of APA, implementation rules for range concept and use of multiple year data to give clear direction to taxpayers. |
| Digital literacy | Budgetary allocation for digital literacy program would not only promote "Digital" India but at the same time benefit e-commerce companies. |
| Consolidation benefits | Currently the tax benefits under Section 72A, i.e to carry forward and set off of accumulated loss of the previous company for the merged company is only extended to qualified industrial undertakings. With the number of consolidations in the forms of mergers and acquisitions on the rise in the retail and e-commerce sector, the budget should seek to extend the benefits of Section 72A to the companies engaged in the retail and e-commerce sector. |
| Retail & Entertainment (R&E) zones | FM should consider creating R&E zones along the line of SEZs to promote retail and boost shopping tourism. |
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