Hotline: 1800 102 2007
X
Loading
Search Business Opportunities
Research 2010-03-03

Post budget reactions

With most of the market signals remaining positive with the Union Budget 2010-11, the consumer is happy being center-stage of the consumption story and is in a better position than last year. However, challenges remain. Read on to know what is in store fo

By Malvika Lal Senior Research Analyst

The franchise industry has been looking forward to several regulatory as well as policy reforms to facilitate its growth. A positive GST (Goods and Services Tax) outlook by the Government and a rise in the threshold for tax compliances has been seen as a very positive move by the franchise industry. However, the long impending demand for abolishing dual taxation on the franchise services has been clearly ignored by the policy makers. Presently, both service tax as well as VAT is imposed upon the franchise services which distorts the franchise model completely. Moreover, service tax on rental proceeds further deters the profit feasibility. In all, it has been a budget that has been moderately favourable for the franchise industry. Gaurav Marya, President, Franchise India Holding Ltd shares, “The budget 2010-11 brings a reasonable assortment for small retailers as well as franchisors. While increased income tax exemption limits will certainly boost consumption; imposing service tax on rental property distorts retail business models by making the accessibility of retail spaces precipitously expensive, hence making it unviable to sustain profitably.”

According to D P S Kohli, Chariman, Koutons Retail India Ltd, “Overall, it has been a mixed budget for us. New tax slabs and rates have been introduced which would offer 60 per cent relief to the tax payers providing them with greater disposable income. This would provide the necessary boost to consumer’s spending a pre-requisite to unleash the true growth momentum of the retail sector. In addition, reduction of surcharge on domestic companies that the finance minister has announced is sure to accelerate the expansion plans for the retail players at home. However, industry status continues to delude the retail sector. This is a disappointment since this is the first step towards reforming the sector and organising the highly unorganised sector. The hike in the excise duty is also not favourable for us since this might directly affect the quality of production.

Badrinath, Director, Accretive Global stated that the budget has both the shades of grey and white for the franchise industry he further explains detail implications

The good news

  • No change in service tax rates and the same continues at 10.3 per cent. The FM in his budget speech states that this proposal is ‘to maintain the growth momentum and also to bring about a convergence in the rates of tax on goods and services.’
  • Small businesses stand benefited on account of lower direct tax compliance costs. The threshold for having the accounts audited for tax has been increased from 40 lacs to 60 lacs. Further, small businesses with turnover/receipts lower than 60 lacs can also choose to be covered by the presumptive tax system. The threshold earlier was only 40 lacs.
  • The frequency of remittance of central excise is extended to quarterly basis from the current scheme of monthly payments for units operating under the SSI Scheme.
  • As a welcome step, exemption from four per cent special additional duty of customs is granted to mobile phones, watches and garments imported in pre-packed condition for retail sale.

The not-so good news

  • The FM has retrospectively amended the provisions relating to levy of service tax on renting of immovable property. The judgment of the Delhi High Court in the case of Home Solutions Retail is negated by making mere renting of immovable property liable to service tax.
  • Furthermore, much against the industry expectations, the FM has retained the CST at two per cent and the base rate of excise is increased from eight per cent to ten per cent.
  • The FM has extended service-tax on health check-up services provided to employees of a business-entity or persons covered under health-insurance-schemes if such payment is made by the business entity or insurance company. This is likely to increase the cost of healthcare services. However, if carefully managed, the franchisees in this sector could claim credits of service tax paid on various input services such as renting of immovable property and franchisee fee which is currently adding to the cost of the operations. This could reduce the net price impact for the end consumer.

As the franchise industry brings with its surge innovative business models to tap the potential of Indian consumption, it also demands a favourable ecosystem which can be realised by necessary monetary policy reforms.

Comment
karan singh 07, Mar 2011 at 04:07 PM
need to open an store in jodhpur under any famous fashion designer of India. so need to know process thanks
jignesh 22, Oct 2012 at 03:30 PM
i have space of 300sqft in prim location surronding by tbz , taniqsh opp hotel impereal plsce of rajkot, like do enthic wear if any one intresting..
vikesh pal 19, Feb 2014 at 07:35 AM
please tell me about franchise in jaspur i want to open an institute of inifd
MATHEWS 02, Feb 2015 at 06:47 AM
India is the 3rd largest exporter of bicycles/spares, but unfortunately none of the manufacturers are interested in developing new components or models. They are just copying or importing from China and showcasing. This is the sad part. The Government must come forward by offering facilities.
Related opportunities
  • Others Health Care & Fitness
    About:Rainbow Light was founded in 1981 in beautiful Santa Cruz,..
    Locations looking for expansion New Delhi
    Establishment year 1981
    Franchising Launch Date 2016
    Investment size Rs. 30lac - 50lac
    Space required 250 - 500 Sq.ft
    Franchise Outlets -NA-
    Franchise Type Unit, Multiunit
    Headquater South Delhi New Delhi
  • Bike Maintanance & Repair Services
    About:DOMON's’ is a one of a kind after sales superbike..
    Locations looking for expansion Karnataka
    Establishment year 2015
    Franchising Launch Date 2017
    Investment size Rs. 30lac - 50lac
    Space required 2000 - 4000 Sq.ft
    Franchise Outlets -NA-
    Franchise Type Unit, Multiunit
    Headquater Bangalore Urban District Karnataka
  • Quick Service Restaurants
    About:TheTuck Box is a growing fast food Brand which Known for their..
    Locations looking for expansion Maharashtra
    Establishment year 2013
    Franchising Launch Date 2016
    Investment size Rs. 20lac - 30lac
    Space required 250 - 700 Sq.ft
    Franchise Outlets -NA-
    Franchise Type Unit, Multiunit
    Headquater Mumbai City Maharashtra
  • Bakery & Confectionary
    About:Founded by mother daughter duo Tabassum and Sheeba Hasan, in..
    Locations looking for expansion Maharashtra
    Establishment year 2012
    Franchising Launch Date 2017
    Investment size Rs. 10lac - 20lac
    Space required 300 - 900 Sq.ft
    Franchise Outlets -NA-
    Franchise Type Unit, Multiunit
    Headquater Mumbai City Maharashtra
Insta-Subscribe to
The Franchising World
Magazine
For hassle free instant subscription, just give your number and email id and our customer care agent will get in touch with you
OR Click here to Subscribe Online
Daily Updates
Submit your email address to receive the latest updates on news & host of opportunities
More Stories