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
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
The not-so good news
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.