The pandemic, ongoing for almost two years now has been extremely straining and challenging for economies across the globe with India being no different. The lockdown and restrictions imposed for brief periods, mandating limitations on retailing hours, movement of people, operational days, etc., have all resulted in retail establishment owners incurring heavy losses. While businesses were slowly recovering to pre-pandemic levels, the new variant and surge in cases have again slowed things down across business segments.
The retail sector is among the largest contributors to India’s GDP, 8-10 percent on average, and the second-largest employer in the country. E-commerce channels on the other hand are growing at a tremendous rate with more than 19,000 e-commerce businesses in India and more than 800 D2C brands roughly worth $44.6 billion in 2021 projected to reach $100 billion by 2025. Further, the D2C startups space has raised a whopping $2.04 billion in funds since 2014 with categories like fashion, home decor and consumer electronics leading the charge.
This sector is worth billions of dollars and employs millions of people who must receive a much-needed boost to steer towards recovery. It is hopeful that the government will allocate resources to plan for the revival, promote growth and boost the economy.
Considering the above, the following changes can be expected from the government:
Policy-related measures
Digitisation in the retail sector to streamline business and compliances under one Umbrella Act – Currently, new businesses incur substantial time efforts to obtain as many as 16 to 25 licenses for commencement of operations.
Accelerate and implement the National Retail Trade Policy to streamline the growth of all formats of retail trade, reduce compliance and regulatory burden.
Give industry status to retail along with financial incentives to large-scale projects also opening doors for cheaper finance options for the sector.
Increase purchasing power and additional COVID-related support
Consider increasing the standard deduction provided to salaried employees from Rs 50,000 to Rs 75,000 to increase consumer spending.
Consider providing tax exemption for amounts received from employers towards medical treatment for COVID-19 and relief to MSMEs and other sectors severely impacted by the pandemic.
Increased support to startups
Deferment of taxability of ESOPs from ‘date of exercise’ to ‘date of sale’ for startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT).
Address disparity in long-term capital gains tax rates between Resident and Non-resident shareholders of start-ups.
Announce tax and regulatory framework for overseas listing of shares for startups.
Relax criteria for qualifying as an eligible startup (Rs 100 crore turnover limit, certificate of eligible business from the Inter-Ministerial Board of Certification, etc).
Revisit criteria for relief from Angel tax - the current criteria need to be revisited since only a handful of startups get covered within the slim criteria limit provided (recognised by DPIIT, the aggregate of share capital and share premium does not exceed Rs 25 crores).
Rationalise tax laws and compliances
The government may consider the sector’s long-standing demand of allowing carry forward and set-off of ‘accumulated loss and unabsorbed depreciation to service sector which is currently available only to entities primarily engaged in manufacturing.
Reduce compliance requirement and promote ease of doing business, by doing away with the Tax Collected at Source (‘TCS’) provisions on the sale of goods (data collation being one of the primary reasons for the introduction of this provision) considering the Government has introduced TDS on purchase of goods at 0.1 percent /5 percent subsequently also given that sufficient data points would be available on the purchase/sale side of the transaction as well from GST compliances.
Beneficial tax rate of 15 percent provided by the government in 2019 to new units that start manufacturing by 2023 should also be extended to new service sector units to incentivise the said sector.
Clarify the fate of the Equalisation Levy (EL), on account of the impending introduction of the BEPS Pillar 1 approach, in 2023 – Also the recent clarifications brought to the EL provisions further increases the scope to inter alia include supplies for which the orders are placed through emails or on the ERP which may not be the intent of the legislature. It is an industry expectation that a few qualifiers would be introduced to this levy, limiting its extent.
Consider waiving off TP compliance requirements for foreign companies receiving royalties, interest, and service fees that are subject to withholding tax and having exemption from filing tax returns to ease the compliance burden.
Advance Pricing Agreements (‘APAs’) which allow taxpayers and tax authorities to determine in advance an appropriate transfer pricing methodology for a given set of transactions over a fixed period should be accepted for Customs purposes as well to avoid multiple scrutinies on the same transaction.
Further, from a customs duty rate standpoint, some movement in duty rates can be expected to incentivise value addition in India and correct inverted duty structure.
While amendments in GST will not form part of Budget 2022 which is routed through GST Council, the key asks of the sector includes allowing an input tax credit for civil construction, refund of unutilised input tax credit under GST in case of closure of stores, among others.
Incentivise manufacturing
Production Linked Incentive scheme should be expanded to include other retail sectors as well apart from the ones already included to enhance India’s manufacturing capabilities; promote retailers to expand their units, generate employment and improve exports.
The writer is Director, Tax and Regulatory Services, EY LLP; Raghavendra Vinayakvitthal, senior tax professional with EY has also contributed to this article.
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