Retailers to go to Court on Proposal of Service Tax on Rentals

Retailers have decided to go to Court for the proposed service tax on commercial rentals for Financial Year 2007-08.

ET has reported that top notch of major retailers, Reliance, Future Group, Shopper's Stop, Trent and Globus, are working out collectively with few of the legal firms to file a representation with the Government and if the same does not work out, a legal action to stop the Government from imposing the Service Tax.

The contention is that Rentals by any angle, does not seem to be a service rendered. The proposal is to tax the rental @ 12.4 % including the education cess.

Retailers are already reeling under the high rentals for contracts which they entered during last one year. Retail Industry is growing @ 30 % and the rentals form major part of the expenses. The rentals are already eating upto 15 % of the Sales. The retailers world over and not surprising, India too, operate with a thin margin and the business is more based on volume rather than margins. Being a very nascent sector in terms of organized business, retailers cannot think of passing the increase in rental to the consumers. Having said that, they cannot think of passing on the service tax to the consumers at all.

As mentioned in my earlier posting, this again threatens the growth potential of India. Increase in the organized retailing is expected to bring in lots of supply chain benefits percolating to the farmers and also benefit consumers and unemployment to a large extent.