Budget 2008 is on the cards, and the retail fraternity has their fingers crossed. While Indiaretailing was penning down the expectations of the fraternity, it noted that everybody echoed the same concern – ‘why service tax is charged on rentals?’
According to experts in the industry, service tax levied on rentals paid for an immovable property occupied by retailers is a major cost component. This is due to the fact that the retailers who pay the state VAT on sale of their goods do not have any output service tax liability against which they can set off the service tax paid by them.
Retailers feel that they already work with thin margins due to fierce competition, and are additionally burdened with service tax. “This only results in goods becoming expensive for the consumer,” an industry analyst opined.
Inder Dev Singh Musafir, director, M&B Footwear Pvt. Ltd, has insisted on rationalisation of excise duty. He said that the footwear industry should be treated at par with the apparel industry on the taxation front, as both apparel and footwear complement each other and have similar usage patterns from the end-consumer prospective.
He said there’s no excise on apparel, whereas footwear attracts a 10 per cent excise duty and a steep 12.5 per cent VAT, which, in turn, has a cascading effect on the product cost and pricing for the end-consumer. Therefore, it would be most ideal to rationalise the excise duty and VAT to bring it at par with the current structure of apparel industry. The move will encourage more people to come on-board to pay taxes, thereby increasing the overall revenue collection.
Musafir also condemned the service tax on rentals and advocated a code of conduct for real estate developers. (Refer to news: M&B: Moral code of conduct a must for realtors)
Vinod Sawhny, president and COO, Bharti Retail Ltd, said, “Growth momentum built over the last four years needs to be sustained through industry-friendly measures. Relief in taxation in key FMCG categories will help spur consumer demand. On the real estate front, a review on the service tax would be welcome as real estate is not a service. The overall buoyancy in VAT and sales tax collection from the retail sector will neutralise the revenue loss on this count. Given that future growth of emerging sectors like retail critically hinge on trained manpower, Budget 2008 needs to promote the training and skill development sector with appropriate initiatives.
BS Nagesh, managing director, Shoppers’ Stop, stated, “ I would request the government to allow retailers to adjust the service tax on all inputs such as rent and telephone against the sales tax that we collect from consumers.”
Rajan Malhotra, chief executive officer, Big Bazaar, said, “We want the government to produce a budget that will increase the consumption level in the country and, thus, help us to do better business.”
Home fashion brand Portico also echoed the same opinion as an official informed that the company wants the government to help the brands to move easily inside the country. “The government should rationalise the movements of the brands inside the country, so that the customer can get the brands at reasonable costs.”
Munish Hemrajani, managing director, Big Apple, said, “We expect some steps from the government which would benefit us in the business. We request the government to revise its policies on VAT and take some initiatives to make our movement within the country a bit smooth.”
Surinder Aggarwal, managing director, Vishal Retail, said, “I would ask the government to think about considering the service tax on retail rents, and also to grant industry status to the industry. The government should also work to bring in uniform goods and services tax (GST) in the country.”
Lalit Kumar, chief executive officer, Ebony, said, “My major expectations from the government are to abolish service tax on retail rents and grant retail the official industry status.”
Hemant Sachdev, managing director, Chogori India, the company that deals in footwear brands Hi-Tec and Crocs, said, “The government should rationalise its policies on issues like service tax on rentals. We also look forward to better clarity on the methods of attaining government permits while moving across regions in the country.”
The real estate developers also feel that the service tax on retail rents should be revised and brought down.
A DLF spokesperson said that the costs of accessories and plots should be reviewed to get quality retail space in the country.
Abdul Rab, chief executive officer, Parsvnath Developers, said, “The service tax should be abolished this year, and the price of accessories should also be brought down so that we can come up with more quality retail space.”
A Unitech spokesperson voiced a similar line of thought, and said, “Retail in India won’t develop unless the real estate sector comes with more quality retail space. For this, the infrastructure costs should be brought down.”
Pranay Sinha, chief executive officer, SelectCity Walk, was also of a similar opinion, saying, “There should be no service tax on rentals, and the government should work to generate an even GST across the country.”
Sanjeev Sharma, director, Gardenia India Ltd, said, “There is a dearth of quality retail space in India, and the government should come up with steps to make the builders build spaces in lower costs.”
ASSOCIATIONS AND EXPERTS
Samir Kuckreja, vice president, National Restaurant Association of India (NRAI), listing his expectations, enumerated the following requirements:
• Removal of service tax on retail rents
• Customs duty on imports of appliances to be brought down
• Abolition of GST
• Removal of excise on confectionery items
• Introduction of training programmes to get trained manpower
• Liberalisation of labour laws throughout the country
According to a source in Federation of Indian Chambers of Commerce and Industry (FICCI), the body wants the government to deal with the concerns of the retailing community with respect to service tax on commercial establishments.
The federation also wants the government to come up with permanent solutions for lack of proper infrastructure and cold chains, non-uniformity of VAT rates, and technical hassles faced by the industry.
Clothing Manufacturers’ Association of India (CMAI), in a pre-Budget memorandum to the Union finance minister, had requested for fixed import duty on garment machinery at five per cent. “The appreciating rupee has hit Indian exporters more than their Asian counterparts, making the prices of Indian garments less competitive in the market. The recent increase in duty drawback rates helped to a certain extent, but state and corporation levies continue to hinder exports,” commented Rahul Mehta, president, CMAI.
In a statement, NV Sivakumar, leader, retail practice, PricewaterhouseCoopers, said that the retail sector has not been fully liberalised and needs to be granted industry status.
However, numerous brands that dominate the industry feel that there are several other major issues that need to be addressed, other than the granting of industry status. Hemant Sachdeva of Chogori India said, “Granting industry status is a long-term process; the government should focus mainly on implementation of VAT and ensure availability of organised financing.”
Munish Hemrajani from Big Apple said, “It is not so easy to grant industry status, and it won’t be possible so quickly.”
The Portico spokesperson responded by saying that the ministry should seriously think about major immediate issues like VAT, finance and infrastructure, rather than going after long-term goals.
Recently, Indiaretailing had reported about the textile industry hoping that the finance minister would announce reduction in excise duty on textiles and revision of loan repayment terms. The report further read that the finance ministry is likely to consider proposals on reduction of basic excise duty (BED) on textile machinery and equipment to eight per cent from the existing 16 per cent.
Indeed, Indiaretailing looks forward to proactive participation of all stakeholders in the business of retail in the Budget-making exercise, and awaits more industry-consolidating suggestions.
– Ranjan Kaplish and Satrajit Sen