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    Budget 2016: Expect that the rate of tax on excise and services is not increased

    Synopsis

    The Make in India project has set the ball rolling with investment commitments amounting to a whooping Rs. 15.2 lakh crore.

    By Paresh Parekh, Tax Partner- Retail & Consumer products, EY

    The retail sector, although not focused on in the Make in India project, is an integral part of the Indian economy. The retail sector in India is one of the fastest growing sectors in the world. It has undergone a sea of change in the last decade with an exponential growth and expansion into Tier II and Tier III cities along with the metro cities. The number of players in the sector too has grown at an exceedingly fast pace with a number of foreign entrants in the market now plying their trade in the country.

    Ever since coming into power in 2014, the Government has been on a drive to market the nation as a global investment hub. The Make in India project has set the ball rolling with investment commitments amounting to a whooping Rs. 15.2 lakh crore.

    Though only time will be the best judge on the success of the project, one cannot but agree that the focus of the world, at the moment, is on India. The upcoming Budget provides the Government an excellent platform to build on the attention garnered on the country through the project and showcase to the world that India is on the path in becoming a developed nation. This article lists out some of the key concerns of the sector which are expected to be addressed in the Budget.

    The success of the retail sector is directly related to the spending of the public at large. Lowering the burden of tax on individuals would increase their spending power, which in turn would benefit the retail sector greatly. Given the rising inflation, it is expected that the basic exemption for taxation of individuals would be increased. Moreover, an expected increase in the deductions available against personal taxation under section 80C would also provide a boost to the retail sector.

    The retail sector is a key sector in terms of employment, with its contribution amounting to about 8% of the total employment in the country. One expects that the upcoming Budget would provide some key incentives for hiring skilled as well as unskilled labour thus benefitting the labour – intensive retail sector.

    While there is steady rise in the workforce, skilled labour is the need of the hour if the economy is to grow. The Government has recognised this and has initiated skill training programmes especially for the rural population. It is expected that the Budget would provide some benefits/incentives to corporates in order to encourage them to directly provide the training to the workforce.

    Currently, certain incentives such as provisions for carry forward of accumulated losses and unabsorbed depreciation in the case of amalgamation or mergers, weighted deduction for in-house R&D, and deduction for certain capital expenditure is not available to companies engaged in the retail sector. It would be interesting to see if the upcoming Budget proposes to allow such incentives in the case of retail companies as well.

    On the transfer pricing front, India has been at the forefront in litigation in recent times especially with decisions on AMP expenses. The retail sector relies heavily on marketing expenditure and therefore, there is some uncertainty in respect of the applicability of the bright line test and the likes wherein marketing expenditure incurred in excess of that of the comparable companies, is treated as a marketing intangible created for the foreign entity in India.

    In light of recent decisions of the High Courts, it is expected that the Government would come up with some guidelines to curb unnecessary litigation.

    On the indirect tax front, the sector faces a lot of hurdles. Some of the key concerns include double taxation on franchisee fees i.e. VAT and service tax, tax cost on excise duty and non-creditable CST in case of inter-state sales.

    Many of these concerns could possibly be met through the implementation of the much awaited and overdue GST. Even though the GST is not expected to be enacted in the upcoming Budget, it is expected that the rate of tax on excise and services is not increased as doing so would increase the financial burden on the industry.

    Finally, it would be interesting to see the proposed amendments in the tax regime arising on account of BEPS, GAAR, ICDS, the Startup India campaign and recommendations of the Easwer Committee. To conclude, it is expected that this Budget would help provide more clarity on the tax front to the stakeholders and provide a platform to enable a remarkable growth in the Indian economy.

    (Rahul Kakkad, Senior tax professional, EY also contributed to the article)

    (Views expressed are personal)


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