FINMIN MAY BLOCK RETAIL CESS

Last updated: 18 September 2007

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The cess on large retail players may not come through at all. The finance ministry is unlikely to endorse a proposal made by the department of industrial policy & promotion (DIPP) to levy a cess on organised retail to create a fund that would finance credit to small retail players. North Block is of the opinion that there is enough credit within the domestic banking system for small retailers. For instance, in September, liquidity in the banking sector is an abundant Rs 28,000 crore. It is likely to remain surplus for the month. Besides, the ministry has said such a cess would only further protectionist tendencies as it seeks to isolate small retailers from competition that could improve service delivery. The objection means DIPP would have to rework the proposal to justify the cess’ objectives. The ministry has also noted that despite the levy, large retailers would still have enough resources to continue with their so-called “predatory practices” vis-à-vis small retailers. The ministry has, therefore, argued for an alternative solution by taking into confidence all stakeholders, said a senior government official familiar with the process. Industry is not enthusiastic about a cess, either, as it is basically a subsidy mechanism for small retail. “In principle, creating a cess is a good idea. But the question is how would it be managed? Moreover, there are other, better measures that can be taken to help small retailers, such as sending big retailers to the suburbs, like a zoning concept,” said Pradeep Mehta, secretary-general, Consumer Unity & Trust Society. According to Manohar Kamath, secretary, Consumer Guidance Society of India, such a cess militates against the principle of efficient operation. “Just because someone has a large economic scale does not mean he can be taxed. This is literally a tax on efficiency,” he said. Proper implementation of the Competition Act would go a long way in protecting the small retailer. It is often seen that large retailers prevent suppliers from providing to small retailers and sometimes bully small suppliers to supply only to them, Mehta added. As reported by FE, the government is contemplating a national retail regulator, and a zoning formula, which would allow all kinds of retailers to coexist.

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