Business Today

Budget 2012: Retailers seek clarity on FDI, smooth GST transition

Expectations are also high for a smooth and quick ushering in of the Goods and Services Tax (GST) that will do away with multiple duties that retailers are expected to pay currently.

Anumeha Chaturvedi        Last Updated: March 2, 2012  | 12:34 IST

Though a lot of noise has already been made with regards to the UPA government's stand on foreign direct investment (FDI) in multi- and single-brand retail, members of the retail sector still expect some reforms and clarifications on the issue in Union Budget 2012-13.

The Cabinet had cleared a proposal allowing 100 per cent FDI in single-brand retail subject to 30 per cent sourcing from small and medium enterprises (SME), while FDI in multi-brand retail was put on hold following protests by Opposition parties.

Krishan Malhotra, a partner at audit firm KPMG, says there is a lot of confusion regarding FDI in single brand retail and the 30 per cent mandatory sourcing clause, and the government would do well to simplify and clarify its stand on this in the Budget.

"At present, a lot of companies cannot attract private equity investments, because of the clause that the investing company should own the brand. Incentives should also be given to the SMEs if they have to cater to other companies," he says.

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Prashant Khatore, Partner at Ernst and Young, says the 30 per cent sourcing clause cannot be uniformly applied to all companies and should be amended.

"The clause should not be restricted to SMEs alone, as they may not have the know-how to cater to all sectors. The luxury sector for instance, cannot be expected to source from SMEs," he says.

Insiders are also expecting an industry status for the retail sector, considered to be long overdue. Expectations are also high for a smooth and quick ushering in of the Goods and Services Tax (GST) that will do away with multiple duties that retailers are expected to pay currently.

There has been a lot of litigation with regards to the service tax on lease rent and retailers expect the government to do away with the same as it's considered to be an additional input tax for them.

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"The current indirect tax regime is an impediment to the sector's growth," says Sanjay Kapoor, the Managing Director of Genesis Luxury. "The existence of a plethora of taxes such as Entry tax and Octroi impede the supply chain and add to logistics costs. The industry further needs a strong commitment from the finance minister for the ushering in of the GST regime immediately," he added.

Mergers and acquisitions within the retail sector can also become more smooth and mutually beneficial with amendments in taxation policies.

"In case of a merger, the combined entity should benefit from the carry forward loss of the acquired company. At present, the clause states that the combined entity can only benefit from the carry forward loss of the acquired company if the latter is in manufacturing," added Khatore.

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