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Feb, 03 2011

The franchisors’ wish list

Budget 2011 is just around the corner, and, as always, it's time for heightened anxiety and anticipation. The franchise fraternity, be it a debutant or an established player, has a long wish list, with a hope that this time, there will be more smiles than

THE franchise market is expecting 30 per cent year-on-year growth in the present fiscal year. It is growing by leaps and bounds and it is high time that policymakers do the needful for the US$ 7.2 billion Indian franchise market. A decade is a long time for any business sector to be called an industry, so why not franchising? It is the need of the hour that franchising be accorded the status of an industry. From F&B to fashion & lifestyle to business and consumer services, franchising runs deep in all these sectors and have turned them into organised sectors. The franchise model generates huge revenue for the economy, and in all cases, is truly eligible to be termed as an industry.

Debmalya Banerjee, Vice-President, Corporate Affairs, Travo, says, “Franchising should definitely be accorded the status of an industry. A separate ministry under the supervision of MoS should be formed for monitoring the activities of franchise business. Franchising is the only means through which local economy can develop. It helps to create a win-win situation for both the government as well as the local entrepreneur, who is taking up a particular franchise. Hence, more governance and clarity should come in this segment and that is possible only when there is a separate vertical ready to take up its cause.”

Om Manchanda, CEO, Dr Lal PathLabs, says, “Today, the government has no well-defined franchise format and there is fluidity and ambiguity surrounding the Intellectual Property Rights (IPR), taxation, labour, exchange controls, etc. In the absence of these guidelines, the whole ecosystem is in a fluid state with respect to guidelines and this affects the entire growth of franchising as a way of business in India. We expect the Union Budget to come out with clear-cut policies and guidelines.”

Another issue dogging franchisors is dual taxation. Presently, franchisors are burdened with dual taxation, wherein they have to pay service tax and sales tax. The effects of this dual taxation are then passed on to the franchisees, which dampens the spirit of entrepreneurship. The country and the common man are already plagued by inflation, so taxation components should be treated with utmost care.

Madhan Ranganathan, COO, Images Infotainment, says, “I expect the service tax and education cess for the private educational training institutions to be abolished in this Budget. VAT should be brought down considerably.”

Prateek Maheshwari, Director of Brand Concepts Pvt. Ltd, avers, “Travel gear and accessories currently attract the highest VAT (12-13 per cent) compared to apparel, which is 4-5 per cent. This is a huge addition to the cost, which makes the product expensive for the end consumer. High VAT is one of the reasons why this industry has highest rate of spurious products in the country. If this Budget can bring down the heavy tax structure to a considerate level, then the industry can get further organised, just like the apparel.”

As per Banerjee, Every transaction should be classified either as a sale or a service. Accordingly, either VAT (for sale transaction) or a service tax (for service transaction) should be charged.

Another matter of concern is the sky rocketing real estate prices and lack of quality retail space. It is a deterrent for all franchisors and franchisees because as per the recent ruling on the service tax on commercial rentals, both the parties have to bear the brunt of rentals.

“The service tax paid on building rent and rentals should be totally abolished. There are court verdicts against the service tax on rent for the building but people continue to pay it. The building owner only leases the space but he does not provide any service to the tenant, hence, it is irrelevant to collect service tax on rent and also on rentals,” says Ranghanathan.

The franchise industry needs motivation from the government, through banks/financial institutions to entrepreneurs, in funding franchise ventures and thriving successfully. Hopefully, the Union Budget will bring smiles on the faces of franchisors and form a conducive ecosystem for the growth of franchising sector.

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