Sales at superstores take hit after VAT hike

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Monira Munni Supermarket operators said the sector is facing tough time as sales of the retail chain shops significantly declined during last six months mainly due to tax anomaly and lack of unified monitoring system. They sought government policy support including reduction of VAT, duty-free import of machinery and a single authority to monitor the sector. The organised retailers said sales of the superstores declined 8-10 per cent mainly due to the hike of VAT to four per cent in July 2012, which was two per cent earlier. These challenges are also threatening the future investment in the sector as many are planning to open more outlets but the present scenario holds them back. "We maintained a growth between 20 to 26 per cent since January to June 2012 compared to that of previous year but the sales have drastically dropped during the last six months," Chief Operating Officer of Meena Bazar Shaheen Khan told the FE. "This is because we collect VAT at 4.0 per cent rate from the customers resulting in a negative impact on them," he explained. Around 38,000 shops, including supermarkets, are now in operation in Dhaka, he said, adding supermarkets have to pay four per cent trade VAT while other shops pay VAT at a flat rate. "It is a discriminatory policy. It is not only hampering growth of the sector but also depriving the government from earning revenue," President of Bangladesh Superstore Owners Association (BSOA) Niaz Rahim said. The government's such policy holds back the sector's growth, he said adding the overall sales growth of the sector declined eight to ten per cent after July 2012 when the new VAT was levied. The government should introduce a flat rate for all the market players to protect consumer's interest, said Mr Rahim, who is also the group director of Rahimafrooz that operates Agora. Another retail giant Shwapno is also worried over the situation. Echoing the association chief, Executive Director of Shwapno Sabbir Hasan Nasir said, "The business model of Shwapno is somewhat different from other chain superstores as its targeted customers are the middle and lower middle-class people." Facing financial crisis, Nandan another retail group, was forced to shut down three out of its five outlets last year, industry people said. The sector insiders also expressed concern over the monitoring system as there is no unified standard. Many authorities including City Corporation, BSTI, DC office, commerce ministry and consumer rights protection department operate mobile courts, BSOA secretary Zakir Hossain said. "We are not against the mobile court operations but there should be co-ordination among them with a single standard," he said. "We all want to protect consumers' right with providing quality and safe food, give us a unified standard and we will follow it," the BSOA president said. "The government's agencies should act as facilitators not administrators," the Shwapno official said. There is huge potentiality to attract investment in the sector that is playing a big role in changing life style, ensuring stable price of essentials, creating employments for educated, semi-educated youths and also helping the government to earn revenue, Mr Rahim added. If the sector gets government's policy support, investment worth TK 1.0 to TK 1.50 billion will be invested only in 2013 as many are planning to go for expansion and open more and more outlets, he said adding Agora has plan to open more six outlets by the year end. The government collected Tk 300 million revenue in 2011 from the small sector which contributes only 2.0 per cent of the total retail market, he explained. "Superstore is a volume-based business. The more outlets we open the more will be the sales as we will be able to serve more customers," Mr Shaheen said adding they have plan to open more 50 outlets by 2015 which has become uncertain due to these challenges. Shwapno is planning to spread across the country by 2015. The retailers demanding government's assistance said superstore owners have to pay up to 105 per cent in duties on the import of capital machinery relating to the sector while other industries pay a maximum of 5 per cent which is hurting growth of supermarkets in Bangladesh.