Although initiatives like allocation of funds for various projects and implementation of Goods and Service Tax taken in the recent Budget will facilitate the retail industry, the service tax on rentals may prove to be a hindrance for retailers

The Retailers Association of India (RAI) has appreciated the initiatives taken by finance minister Pranab Mukherjee during the Union Budget 2010-11. According to the poll conducted by Retailing360, 69% of the respondents feel that RAI would benefit from the announcements made in the recent Budget pertaining to the retail industry. However, 19% of the respondents do not agree with the same and another 12% of the respondents are uncertain about it.



The finance minister has decided to allocate funds for projects that are to be launched with a technology infrastructure, as also for the Unique Identity (UID) project and implementation of the Goods and Services Tax (GST). RAI has lauded the finance minister’s initiatives that are expected to boost the growth of the retail sector.

According to Sunil Goel, director of Global Hunt India, a mid-sized executive search firm based in New Delhi, “Retailers can witness a positive trend due to the correction of income tax slabs that will increase disposable income of consumers. As a result, there is likely to be a surge in consumer spending among the mid-level income group as well as the salaried youth, many of whom are shopaholics, and boost the sales of retailers.”

Moreover, the proposed implementation of GST in April 2011 is expected to pave a new pathway for growth for the retail sector. GST is a consumption-based tax and the tax rates are lower than other duties. Therefore, it would provide uniformity in taxation across the country, which in turn is likely to increase consumption. In such an event, retailers would witness higher profit margins.

Service tax on rentals

However, the service tax on rentals announced in the Budget has given retailers a cause for concern. “Imposition of service tax on rental properties will increase operational costs of retailers, which can bring down their margins significantly,” says Hitesh Sahni, managing director of HSN Realty, a mid-sized real estate firm in New Delhi. Barring this concern, the retail sector is largely satisfied with the initiatives taken in the recent Budget.

Sabrina Mitchell