Budget 2013: No major impact on retail sector

While, Budget 2013 does not seem to propose any big bang

reforms like 'granting of industry status to retail sector, introduction of GST et al, however, there are certain changes that could have an impact on the market dynamics. While the industry was afraid that the Budget might increase basic excise duty and service tax rates from 12 to 14 per cent, with peak rates of service tax, customs and excise duties remaining unchanged, it has breathed a sigh of relief. Indeed it would not lead to an immediate across-the-board increase in prices of goods and services.

There is a relief to readymade garment manufacturers too with the option of excise duty exemption being restored for branded readymade garments. But duties on various luxury consumer products have been increased.

Capital starved retail companies may find interesting to wait for further clarification on how the new definition of 'FII' and 'FDI' will work, since otherwise stringent conditions associated with FDI may not apply to FII. Finance Minister has proposed to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 per cent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 per cent, it will be treated as FDI. Withholding tax on royalties/franchise fees is proposed to be increased substantially from 10 to 25 subject to treaty benefits, so foreign franchisors may end up having a higher tax burden in India.

A key announcement that the retail sector was looking forward to was a detailed roadmap for GST implementation, since GST is expected to significantly reduce the indirect tax burden on the sector by removing cascading of taxes. However, the budget does not include any significant announcements in this regard.