Ever since the Goods & Services Tax (GST) got implemented, its effects on different sectors across India became a much talked about matter among both industries and the common people. While some sectors such as the consumer durables and the entertainment sector are bearing the brunt of GST, there are some like the Indian beauty industry, which stands to benefit immensely from the unified taxation system in terms of input tax credit.
Although there are several beauty products and cosmetics which have been taxed 28 per cent under GST, beauty service providers stand to save a substantial amount via tax relaxation benefits. However, despite the positive impact of GST on the industry, there are some challenges which it needs to resolve to fully take advantage of the current reform.
According to industry reports, almost 90 per cent of unorganized players in the salon industry, i.e. 80 per cent of the total industry, usually do not have easy exposure or access to information to fully understand the updated GST tax system or its benefits in a structured & user-friendly way. This lack of data and understanding has left many salon owners unable to take advantage of the tax input scheme which is available for them, and hence, leading them to losses. Another factor that is contributing to their woes lies in the fact that salon owners are ending up with increase in tax hit from 12 per cent to 28 per cent on their cost of good just with the partial understanding of the system, by not collecting GST (service tax previously) on their services sold.
However, according to some industry experts, the beauty and salon industry in the country can significantly benefit from the GST regime in terms of overall industry growth via Input Tax Credit – a credit mechanism that allow businesses to claim tax relaxation on goods purchased by them.
Input tax credit – A boon for businesses under GST reform
As previously stated, like every taxation model, the GST also has its set of pros & cons, depending on different industries. In case of small service providers like salon chains, GST is proving to be a boon for them as it provides additional tax set-off benefits on consumables’ paid GST against their collected GST on services, which can proportionately increases their margins.
For instance, prior to GST, when 12.5 per cent VAT was levied on cost of goods, the salon industry in India was unable to get tax input benefit from the service tax on the sale of services, which was 15 per cent. However, salon owners & aggregators can now access input tax credit under GST, which roughly counts to 2.5 per cent benefit if calculated under the previous structure and 5.6 per cent under the new structure. This is due to the increased tax slab from 12.5 per cent VAT to 28 per cent GST on different beauty products.
Moreover, unlike the previous system, wherein the service industry could never enjoy the tax input benefit from sale of the services because of mismatch of multiplicity of taxes, beauty service providers can now enjoy input tax benefit under the new unified taxation regime.
The merging of multiple tax structures to one mother structure, i.e. the GST can eliminate several challenges that tax payers had to face in dealing with multiple tax authorities. Thus, over all, as rightly projected by industry experts, it can be concluded that GST is here to simplify things for service providers, and make the overall business process more efficient in the future.