Tension between prominent malls and their star tenant Zara are mounting. After malls were irked by the Spanish fashion retailer promoting its online platform in stores, the latest wrangle between them is over a change brought about by the introduction of goods and services tax. High Street Phoenix in Mumbai and the National Capital Region’s Mall of India, Select Citywalk, Promenade and Pacific, among other shopping centres, are refusing to continue with a “special arrangement” where they used to pay half of the 15 per cent service tax on rent paid by Zara.

With GST subsuming service tax, the malls said Zara should bear the entire burden of the new 18 per cent tax. “Service tax on rent was a cost and we agreed to foot half of the bill for Zara,” said a top mall Executive, asking not to be identified. “Now Zara gets input credit for the GST they pay, so it is no longer a cost. Then why should we continue to pay half of it?” The retailer, however, has indicated to the malls that the arrangement should continue, they said. Zara declined to comment on the matter. Rajendra Kalkar, President, west, at Phoenix Mills, the owner of High Street Phoenix, and Yogeshwar Sharma, Executive Director of Select Citywalk, declined to comment, as did Pushpa Bector, head of DLF Premium Malls, which owns Mall of India and Promenade.

Zara, which arrived in India in 2010, soon became a favourite of malls as it attracted footfalls in droves and clocked the highest revenue for any tenant, replacing local hypermarket chains Big Bazaar and Shoppers Stop department stores as the “anchor tenant.” With consumers lapping up Zara, the Spanish company became the first international brand to clock $100 mn in sales in India in 2015. Malls seeking to lure Zara have accommodated its demands, including providing free fitouts in outlets, low revenue-sharing and agreeing to pay a portion of the tax on rent. The tax-sharing tussle is the second instance of prominent malls taking on the Spanish brand in recent months after many of them objected to the retailer featuring Zara.com ads on store fronts.