Govt should consider formulating proposed national retail trade policy for bolstering sector

The retail sector has emerged as one of the most dynamic and volatile sectors in recent times. Innovations and transformations are happening faster and at a greater magnitude than ever, presenting challenges to retailers accustomed to balancing conventional performance metrics such as growth, profitability, and space productivity. The Indian retail market is targeted to cross the $1.2 trillion-mark by 2021. The continued rise in per capita income and consequent expenditure is the testimony to this prediction. However, the path to achieving this ambitious target is fraught with challenges and the retail sector needs to roll up its sleeves. With the Union Budget 2019 around the corner, here are some of the key challenges and a wish list covering some of the key expectations of the sector. The retail sector is currently grappling with challenges. Some of these are the following. The Indian market is still dominated by the unorganised sector and there is a lack of effective supply chain management. Also, the growth in the retail industry has created a demand for real estate, which in turn, has resulted in a rise in real estate cost. [caption id=“attachment_4296889” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The lack of proper infrastructure and developed supply chain results in inefficiencies, leading to higher costs. This, coupled with rising real estate cost, significantly impacts profitability. Again, the absence of a national level policy for the sector has resulted in sporadic efforts. Not many incentives have been granted for new entrants/innovation in the retail space. On the tax front, long-standing issues such as treatment of Advertisement, Marketing and Promotional (AMP) expenditure, taxation of digital economy/content, withholding of taxes on software, advertisement and other foreign expenditure, etc., haven’t been addressed to the industry’s satisfaction–leading to protracted litigation. Expectations from Union Budget 2019 Union Budget 2019 presents the government with a good opportunity to address some of the key challenges and push the economy to a higher growth trajectory. The newly elected government has set up Cabinet committees to address the focus areas of growth and job creation across sectors. To accelerate employment generation, corporates can be incentivised to invest in education and training of the workforce. In addition, the government can consider enhancing the current deduction threshold under Section 80JJAA and relaxing related conditions. As consumption grows, retail grows with it too. The way in which the government can help instantly is by reducing taxes on individuals. The increase in disposable income would result in additional demand and help boost the retail sector. Incentivising the use of technology, and digital/cashless transactions, can facilitate e-commerce, and help optimise costs. The government can consider formulating the proposed national retail trade policy, to bolster the retail sector, while protecting the interest of consumers. The government can also consider making amendments/providing clarifications on long-standing issues which have led to litigation with tax authorities. While simplification of Goods and Services Tax (GST) compliance is underway, structured implementation of the new return filing mechanism will help in easing the transition process. The refund of IGST paid on export is expected to be processed after stringent verification of input credit claimed and adjusted against the output liability, to curtail utilisation of input credit availed on bogus invoices. Rationalisation of refund under inverted duty structure for input services would be welcome. Greater clarity on the mechanism of computing benefits to be passed on to customers under the anti-profiteering provisions is vital, especially in light of adverse anti-profiteering rulings resulting from the divergent interpretation of extant provisions. Deloitte’s point of view The Indian retail sector has seen strong growth due to a combination of reform-oriented steps by government that stimulated investment and favorable demographics. Backed by a clear majority, the new government can continue with bold reforms that would galvanise the retail sector. (Talreja is Partner, Deloitte India. Vijai Jayaram-Director, Rashmi S- Director, Ankit Shah-Manager, and Shivangi Gupta-Assistant Manager, Deloitte Haskins & Sells LLP also contributed to the copy.) Follow full coverage of Union Budget 2019-20 here