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PwC Retail&Consumer Newsletter-March 19 to 23

Executive summary
Impact of the Union Budget 2012-2013: The R&C perspective The Budget for 2012-13 proved to be a mixed bag for the R&C sector. Following are some of its features: Neither retail has been accorded the status of a sector nor has it been fully liberalised. The proposed implementation of the Goods and Services Tax (GST) by August 2012 is a positive step as this is expected to do away with the multiple duties paid by retailers presently. It is disappointing that FDI in multi-brand retail is still on hold and no indicative timeline for its approval has been conveyed. Rising inflation has been one of the significant inhibitors for the FMCG sector. It reduces disposable income, thereby curbing the demand side of the sector. The Budget attempts to moderate the rise in inflation by providing incentives to the agriculture sector and addressing the supply chain constraints. The revised tax brackets on personal income will put more money in the hands of consumers, thereby boosting consumption. However, increase in service tax and excise duty will adversely affect the FMCG sector. Higher taxes will make products more expensive and may negate, to some extent, the positive effect of the revised tax slab rates. This issue provides highlights of the change in tax duties and incentives for the retail and consumer sector.

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Executive summary

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Impact of the Union Budget 2012-2013: The R&C perspective

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PwC Retail&Consumer Newsletter-March 19 to 23 Impact of the Union Budget 2012-2013: The R&C perspective
Segment Budgetary provisions The government has announced many incentives and initiatives to boost the segment. These include the following: Subsidies related to food and for administering the Food Security Act will be fully provided. A new centrally sponsored scheme titled the National Mission on Food Processing will start in cooperation with state governments in 2012-13. Modern silos will be created to store 2 million tonnes of food grains. Mission for protein supplement is being strengthened by the following provisions: Dairy sector: A 2,242 crore INR project is being launched with assistance from the World Bank. Fish and aquaculture: Nearly 500 crore INR is allocated to improve productivity. Excise duty of 1% on precious metal jewellery (branded as well as unbranded jewellery come under the ambit). To minimise the impact on small artisans and goldsmiths, the following conditions have been included : To charge this duty on tariff value equal to 30% of the transaction value. To extend small-scale exemption up to annual turnover not exceeding 1.5 crore INR for units having a turnover below 4 crore INR in the previous year. To compute turnover on the basis of tariff value To place the onus of registration and payment on the person who gets jewellery manufactured on job-work. Excise duty on gold and titanium doubled. Branded silver jewellery fully exempted from customs duty. Impact Nutrition and wellness to increase Availability of foodgrains to increase Food quality to rise

Food and beverages

Jewellery

The hike in taxes will likely be passed on to consumers. Consumer demand for jewellery will be affected by higher prices.

Cigarettes and other tobacco products Consumer electronics Apparel and textiles

Increase in basic excise duty on cigarettes of more than 65mm length by adding an ad valorem component of 10% to the existing specific rates. Increase in basic excise duty on hand-rolled bidis from `8 to `10 per thousand and on machine-rolled bidis from 19 to 21 INR per thousand. Pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches will attract excise duty under the compounded levy scheme. LCD and LED panels are exempted from customs duty. Automated shuttle looms exempted from customs duty Excise duty on readymade garments further reduced Full exemption from basic duty for automatic silk reeling and processing machinery as well as its parts

The increase in duty will likely be passed on to consumers

Better prices for durables and electronics Better prices for consumers

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PwC Retail&Consumer Newsletter-March 19 to 23 Impact of the Union Budget 2012-2013: The R&C perspective
Key tax reforms affecting the sector A lot was expected from the finance minister (FM) in terms of some committed timeline for introduction of GST, however the FM has just expressed that GSTN will be ready by August 2012. Therefore no clarity has been given with regards to implementation of Goods and Services Tax (GST) in 2012 as the constitutional amendment bill is still pending for approval before Parliamentary Standing Committee and drafting of model legislation for Centre and State GST is still under progress. The FM, however, has expressed that the structure of GST Network (GSTN) will be set up and is expected to become operational by August 2012 as a National Information Utility. The GSTN will implement common PAN-based registration, returns filing and payments processing for all States on a shared platform. The use of PAN as a common identifier in both direct and indirect taxes, will enhance transparency and check tax evasion. We appreciate the fact that the central government needs to have a buy in from the States on implementation of GST, however it needs to take some concrete time bound steps to make it a reality. In order to codify the doctrine of substance over form, it has been proposed to incorporate the anti-avoidance provisions in the form of GAAR with effect from financial year 2012-13. According to it, an arrangement with the main purpose of obtaining tax benefits and which satisfies one of the specified conditions will be treated as an Impermissible Avoidance Arrangement (IAA). The consequences of an arrangement being declared as IAA will be based on the circumstances of the case. Further, it has been proposed that the Central Board of Direct Taxes will prescribe a scheme to regulate the condition and manner of the GAAR provisions. To address the large-scale litigation in transfer pricing (TP), the government has introduced APA in the Finance Bill with effect from 1 July 2012. The Finance Minister stated that the introduction of APA can bring down TP litigation significantly and provide tax certainty to foreign investors. An APA is a prior arrangement between the taxpayer and the tax authority with regard to actual transactions, with a view to cooperatively resolve potential taxation disputes. The taxpayer and tax authority mutually agree on the transfer pricing methodology to be applied over a certain future period. The CBDT is yet to frame detailed rules and guidelines for APA. These are expected to provide retail companies with an increased degree of certainty to prevent costly and timeconsuming litigation. They will also portray India as a progressive tax administration on the global map. 3

Goods and service tax (GST)

General Anti Avoidance Rule (GAAR)

Advance Pricing Agreement (APA)

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