Shoppers Stop turns to solar power to avoid service tax on electricity

"The company is trying to rework power consumption as mall owners and retailers will have to pay 12.5%service tax on electricity with effect from July this year according to a recent government notification," Govind Shrikhande, managing director at Shoppers Stop, says. "The difference between solar power cost and our power bill will be minimal after the new tax." The country's largest department store chain paid over Rs 70 crore on power bills last year.

While Shoppers Stop plans to use solar power at its four stand-alone stores, many other retailers and mall owners are looking for ways to lower energy usage to limit the impact of the new tax.

Dubai-based Landmark Group's departmental store chain Lifestyle, for example, plans to install energy saving lighting systems in its stores.

"There has been pressure on the profit and overall markets since few years now. Imposing taxes like this puts retailers under pressure at the wrong point of time," Kabir Lumba, managing director at Lifestyle International, says.

Mumbai-based Oberoi Mall is mulling various alternative fuel options. "Even water consumption is taxed. Hence, we started rain-water harvesting which has cut costs significantly," Nirzar Jain, vice-president at Oberoi Mall, says.

Retailers also plan to take up the issue with the government as the new tax is imposed at a time when consumer sentiment is down and companies' profitability is under severe pressure.

"When retailers are paying service tax on costs such as rentals and electricity, it should be ideally adjusted in sales tax. But retailers eventually will end up paying both sales and service tax," says Kumar Rajagopalan, chief executive of Retailers Association of India, a 400-member strong industry body. "It's a huge concern for a business that makes a net profit of just 3% on an average," he adds.

If the levy is brought in after the start of GST, retailers would be able to avail of the setoff of service tax paid against the VAT liability on sale of goods, Rajagopalan says.

Electricity is the third most expense for retailers after salaries and rent.

Recently, credit rating agency Fitch revised the outlook for Indian retail sector to negative from stable for the first half of the fiscal, saying same-store sales growth slipped across lifestyle and value-based formats in the quarter ended June. Last year, retailers had challenged the government's move to impose a service tax on commercial rentals but failed to secure a relief.