While there have not been any sector specific major proposals or any significant reforms and while GST is still a dream, there is a visible shift in the tax regime towards long term stability and reliability.
With rising industry expectations from the government to provide clarity and impetus for this rapidly growing sector and amongst global economy crisis with slow-down in growth from 3.4% in 2014 to 3.1% in 2015, the Finance Minister presented the budget which was built around an agenda to ‘Transform India’.
The Finance Minister started his speech by acknowledging the global slow-down while highlighting how the Indian economy has held its ground firmly courtesy the strengths and policies of the Modi government also pointing out the key achievements of the government in the last year. Further, he retained the fiscal deficit while assuring the House that the development agenda has not been compromised.
For the sector, while there may not be any ‘big bang’ reforms, the budget does propose measures to ensure a long term steady growth for the sector as a whole placing thrust on the promotion of entrepreneurship in India and encouraging fresh start-ups.
Key Policy Changes
The Finance Minister while acknowledging that retail trade is the largest service sector employer in the country and can create more jobs provided regulations are simplified, proposed regulations to enable small and medium shops to be kept open all seven days (on voluntary basis and subject to protection of interest of workers). A Model Shops and Establishments Bill would be circulated which can be adopted by the state governments on a voluntary basis.
Increased outlay of INR 38,500 crore for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) would be good for rural consumption power.
Several steps have been proposed to be undertaken for skill development like proposal to setup 1,500 Multi Skill Training Institutes across the country, setup of National Board for Skill Development Certification, Entrepreneurship Education and Training, etc. The retail sector would hence be boosted by a jump in skilled employees which would also improve the employment numbers in the country thereby increasing the purchasing power.
On the direct tax front, in a move to provide impetus to start-ups and facilitate their growth in initial phase of business, it has been proposed to grant 100 percent deduction of profits for 3 out of 5 years to eligible start-ups set up during 1 April 2016 to 31 March 2019 from business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
The Finance Minister has proposed an Equalisation Levy of gross amount received by non-resident foreign e-commerce companies (not having a permanent establishment) for specified services (like online advertisement, provision for digital advertising space, etc.) in excess of one lakh rupees in a year.
Also, a special patent regime has been proposed with 10% rate of tax (on gross basis) on income for an Indian resident from worldwide exploitation of patents developed and registered in India.
To address the requirements of farmers and the food processing industry and to make it more efficient, it is proposed to allow 100 percent Foreign Direct Investment (FDI) through approval route in marketing of food products produced and manufactured in India.
Section 80JJAA which provided for a deduction of 30% of additional wages paid to new regular workmen the provisions of which applied only to a business of manufacture of goods is proposed to be extended to all assessees who are required to get their accounts audited u/s 44AB.
Certain reliefs are proposed to the small tax payers like increasing tax rebate ceiling from INR 2,000 to INR 5,000, increase in deduction for rent paid under Section 80GG from INR 24,000 to INR 60,000 which would result in increase in their disposable income.
On the indirect tax front, imposition of New Krishi Kalyan Cess of 0.5% is going to increase the cost for the retail sector as there is no output liability against which this can be adjusted. Also, branded readymade garments above Rs. 1,000 and specified articles of jewellery are brought into Excise net thereby increasing the cost for the retail consumers.
Further, reduction in the abatements for service tax purposes in case of packaged tour services is going to increase the burden on the ultimate passengers.
Accordingly, while there have not been any sector specific major proposals or any significant reforms and while GST is still a dream, there is a visible shift in the tax regime towards long term stability and reliability. However, the sector still does not have industry status and still lacks clarity on certain provisions with regard to foreign investments in ecommerce.
Author is Tax Partner, Retail and consumer practice, EY
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