Published Editorial

Budget 2013: Expectations from the retail sector

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Economic Times


Paresh Parekh
Tax Partner

Being practically the last budget of UPA government before the election year kicks in, this could very well be the last attempt of the present government in bringing in the reforms and reviving the economy.

Specially, for the retail sector, Budget 2013 would be keenly followed by all the industry leaders including the foreign players who are considering investments in retail sector. It is now in the open that the retail sector is being considered as one of the big ticket sector which could create the required impetus for the next phase of economic development.

Though the Government had laid out a road map for attracting the foreign investments into the sector, a lot of expectations have been built, both from policy makers as well as the investors/players, to ensure that successful transition happens at the ground level.

Listed below are some expectations from Budget 2013 by the retail industry which may provide a boost to the sector and may provide necessary stimulus growth:

Accordance of status to retail as an industry

One expectation which has been on the plate for a while is to accord a separate industry status to the sector in order to efficiently monitor the growth of the industry. Currently, organized retailing in India is managed by both the Ministry of Commerce and as well as the Ministry of Consumer Affairs. Having an independent Ministry/ Nodal minister will provide a forum for retailers to obtain clarity on the ambiguous newly setup regulations, parallel growth of the organized as well as the unorganized sector, employment in the sector, etc.

Increase in individual slab rates

Considering the significant rise in inflation, it is suggested to re-look at the slab rates applicable for individuals and increase the basic rates. This would increase the disposable income in the hands of the individual customers thus enabling more consumer purchasing power.

Employment related incentives

As statistics have indicated, the retail sector is expected to stimulate and generate significant employment opportunities across the value chain which would involve significant costs. Accordingly, as a boosting measure, retail companies should be given profit linked or other incentive for generating additional employment in the sector, being presently granted to industrial undertakings.

Deduction for investment in cold storage

Currently, investment linked incentives are available only to specified businesses which are inter alia engaged in setting up and operating cold chain storage facility or a warehousing facility for storage of agricultural produce and sugar. To remove ambiguity, it should be clarified that such incentives should also be available to retail companies also who make such investments in back end infrastructure.

Retail and Entertainment Zones (REZ)

While the Government's efforts of liberalizing the retail sector and permitting foreign investment in retailing has been much celebrated by foreign retailers, retailers urge the government to consider looking at creating zoning retail and entertainment zoning policy to encourage consumption and shopping tourism along with raising the standard of wellbeing of the citizens. Retailers in REZs could get benefits like exemption from stamp duty, octroi, cheaper power, subsidies, etc. , similar to an Special Economic Zones ('SEZ')

Moderation of carry forward of losses

In line with the recent liberalization, one can foresee a considerable number of consolidations happening in the retail sector through Mergers &Amalgamations. 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. To give boost to the retail sector, it is envisaged that the benefits should also be extended to the companies engaged in the retail sector.

Reduced cost of Service tax on commercial rent

Service tax on increasing commercial rentals and non-availability of credits/ set off is a significant burden on the retailers. Therefore, allowing CENVAT credit of services availed by stores would provide relief to manufacturer - retailers. The industry has also been demanding an abatement (similar to commercial construction services) ranging from 50%-70%, which would allow retailers to pay Service tax at a reduced rate. Further, complete exemption from Service tax with respect to small retailers paying gross annual rentals of up to Rs. 10 lakhs could be considered.

Excise duty on branded Readymade Garments