Retail Sector has provided recommendations to the Government, ahead of the upcoming Budget 2021. Retail sector’s wish list includes a reduction in customs duties on certain products such as furniture, toys, etc., enhancing the existing local testing facilities for quality testing of import of certain items, amendment of law under GST to permit cross-state returns, and reviewing Customs Act to control imports under free trade agreements.
Given that year 2020 has witnessed a lot of uncertainties and challenges for all nations across the globe including India and economic activities were severely affected for few months as India imposed several lockdowns to deal with the outburst of the pandemic, government could also consider rationalisation of the licencing process for new entrants and expansion in retail business by complete digitisation whereby significant time can be reduced to obtain licenses for new entrants in the retail sector.
The government could consider re-visiting the hike in customs duties on certain products which act as trade barriers and are against ideas of a global economy and ease of doing business and will lead to higher costs in India for consumers while balancing the need to push Make in India initiative.
Similarly, to ease the burden of double taxation on retail companies where IGST on ocean freight is taxed twice, Government could consider exempting ocean freight from levy of GST as a supply of service when the same is in relation to transportation of imported goods. Other reforms which Government could consider to reduce the overall cost burden could be to allow an input tax credit for retail sector companies who regularly keep adding new stores by closing some of the existing stores and renovate existing stores intended to be used for the furtherance of business or commerce and clarifying allowance of the input tax credit on business promotion expenses in light of recent Advance Ruling which has denied input tax credit on such expenses on the ground that there is no output GST paid on those products.
In order to promote vision of One Country, One Tax, One Market approach and in light of the fact that retail sector is batting for an amendment of law under GST to permit cross-state returns for the retailer.
Also setting up of a national bench of Advance Rulings could help bring certainty in the GST era as divergent rulings by AARs leave the industry flummoxed about the tax implication of a business decision.
Furthermore, due to the ongoing pandemic, companies are also struggling on manpower as well as facing financial hardship and therefore government may consider e-invoicing system to be deferred say till April 01, 2021.
On the Income-tax front, Government could also consider providing incentives such as accelerated depreciation/additional depreciation for boosting retail infrastructure especially in Tier II and Tier III cities of India. To provide relief for various expenditures which a company could have incurred as a fixed cost during the pandemic situation, Government could consider in providing additional tax deductions to companies for overheads like store outlet costs, employee salaries, rent, electricity expenses, etc. during pandemic wedged period.
Reducing tax rates, aligning income tax slabs, increasing basic exemption limits for income tax, increase overall budgetary spending, etc. could help to boost the purchasing power in the hands of the consumer.
To boost new India investments, liberalizing multi-brand Foreign Direct Investment [FDI] norms around less sensitive and high employment generating sectors like electronics, consumer durables, etc would provide more access to capital and expertise to Indian entrepreneurs and start-ups.
So, all eyes now on whether and how the Finance Minister through Budget 2021 addresses the expectations and challenges faced by the Indian Retail Sector. Timely and appropriate support from Government could help Retail sector, which is India’s one of the largest employment generating sector, in improving employment situation especially amongst the needy and relatively less educated class and also accelerate the capital and income flow to the real productive economy like manufacturing, etc.
--Utkarsh Mehta , Manager, EY co-authored the article.
--Paresh Parekh is Partner & National Tax Leader, Retail Sector, EY.
(Views are personal)
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