The retail industry in India is one of the key pillars of the Indian economy. The sector has flourished over the last few years despite the impact of global headwinds and the COVID-19 outbreak, where the emergence of online platforms accelerated the growth of the sector. The retail space is expected to reach a whopping $2 trillion in value by 2032. While the sector is largely unorganised, the share of modern retail (inclusive of e-commerce) is projected to increase to 35 per cent, and traditional retail is expected to come down to 65 per cent.
Collective efforts of financial institutions and banks with retailers have enabled consumers to accept durable products with easy access to finance and credit. As the Indian retail and consumer industry continues to emerge as one of the most dynamic and fast-paced industries that accounts for over 10 per cent of the country’s gross domestic product (GDP) and around 8 per cent of the employment, the government is expected to make some announcements that will ensure sector’s growth in long-term.
To create a favourable ecosystem, the industry players are expecting strategic announcements from the central government in the upcoming budget. Below are some interventions that will strengthen the sector.
Promoting Benefits, Simplicity, and Ease of Doing Business
It is pertinent for the industry to do business with ease. With the budget announcement right around the corner, a cohesive national retail policy is expected. The policy will help formulate strategies that are globally competitive and will ensure a sustainable environment. This will not only help with the overall development of retail trade but also facilitate easy access to affordable credit, and include digitisation and modernisation within the trade. Other advantages of quick roll-out of the much-anticipated policy include better infrastructural support across the distribution chain, improved skill development and labour productivity as well as an effective grievance redressal mechanism for the sector.
Start-ups are getting functional on the e-commerce and consumer side of the sector. They have been issuing many ESOPs to their employees to attract and retail talent. The sector expects an introduction of explicit provisions in the Income Tax Act treating discounts on issue of ESOP as deductible business expenditure. Further, the principles regarding the determination of ESOP discount and its timing for claiming expense while computing taxable income under the Act should be clearly laid down to avoid any ambiguity.
Also, there is a need for better cash flow management for loss making taxpayers and can be done if the benefits of nil/ lower deduction certificate are extended to TDS u/s Section 194R/194Q/206C(1H). Otherwise, the taxpayers who are incurring huge losses will have to necessarily face tax collection at source on payments made by them for purchases, which will result in the blockage of funds.
Some other announcements that will promote benefits and ease of doing business include allowing CSR expenditure by treating the same as expenditure incurred for the purpose of business or profession thus allowing the same for deduction, fine-tuning of the provisions of Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (‘CAROTAR’) to enhance trade facilitation and allowing Input tax credit to organisations on COVID-19 supplies to employees.
Moreover, widening the scope of the phrase “in the course or furtherance of business” to allow and include ITC on procurements of goods, services or works contract for construction of immovable property where such immovable property is intended to be used in the course or furtherance of business is also expected.
Issuance of suitable clarification to accept the commercial invoice value as import value in the case of Third-Party Invoicing and allowing such the benefit for imports under Free Trade Agreements (FTAs) will also give a boost to businesses.
Litigation
Below are some aspects which will help businesses in the retail space from a litigation perspective.
- Amendment to the act to ensure that Penalties are imposed after properfact-check
- Streamlining of Faceless Assessment proceedings under the Income Tax.
- Amendment to the Customs Act to provide for consolidation of individual appeals with common issue in dispute in multiple BOEs.
Ease of Compliance
Retail business operations can be eased if compliance-related issues are addressed in the upcoming budget. Removal of the mandatory requirement of providing TDS details in the Tax Audit Report to avoid multiplicity of data is one of the instances where government support is required. Furthermore, the requirement of filing Form 10F electronically should be removed and the practice of accepting physical Form 10F should be restored or the system should be modified to allow the filing of Form 10F without PAN.
Boost to White Goods and FMCG
India’s Fast Moving Consumer Goods (FMCG) makers dealt with two major challenges last year, inflationary woes and dampened rural demand. This resulted in downtrading for rural consumers. Reduction in rates of personal income tax with an objective to push disposable income for consumers will allow better recovery. The introduction of rural support programmes and other packages to boost farm income will also aid in increasing rural demand.
Introducing tax rebates benefits for consumer expenditure, and PLI scheme to manufacture TV’s and reducing the GST rate on small screen TV’s, are also key expectations from the government.
Adjusting Tax Rates
A change in taxation rates/slabs is a part of the budget exercise every year, for consumer and economic benefit. Under taxes, retail space is likely to benefit if individual tax rates are reduced, thereby reducing the highest marginal rate. This will ensure higher disposable income in the hands of the consumer and push consumption and demand. Also, an exemption up to INR 20 lakh should be provided for labour charges paid to farmers from TDS. The change is required as farmers are either unable to file IT returns or are ignorant about the refund claim for the TDS. Reducing the disparity in various TDS rates and minimising it to only two or three TDS categories with an exemption list will surely benefit.
Further, there is a need to streamline capital gains rates, holding period for different types of instruments falling within the same asset class and indexation benefits.
While the Budget 2023 will be the last full budget of the government’s current full tenure, it is noteworthy to observe and analyse whether the objective of the Budget is to provide tax breaks or increase jobs to enhance consumption. To achieve any of them, it is prudent that wider private participation be encouraged (through classic models such as PLI schemes, implementation of the national retail policy or by increasing the spending capacity).
Despite the inflation expected to play spoilsport, the North Block cannot afford to miss the opportunity presented by way of this Budget to push the demands/ aspirations raised by the trillion-dollar sunrise sector- the consumer and retail sector as this sector holds the key to a $5 trillion economy.
(Naveen Malpani is partner and leader (consumer sector) at Grant Thornton Bharat. P S Krishnan is partner (tax) at Grant Thornton Bharat)
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