In India Goods & Services Tax Law is a comprehensive, multi-stage, destination-based tax that will charge on every additional benefit. In simple terms, GST is an indirect tax levied on the supply of goods and services. GST Law has replaced many complicated tax bills that already existed in India. The GST will change the way people perform their businesses in India as the country will become a single market with an individual tax rate, irrespective of the state in which you conduct your business. Excepting a few exemptions, from the smallest entity on the economic food chain to the multi-billion combination, no one will stay untouched by the GST. The impact of the new tax regime will be proportional to the size of the entity, but eventually, it will be the end user who will bear the burden of the excessive tax rate or get the advantage of low tax.
Ever since the GST was implemented, their effect on different sectors across India has become a much-spoken matter between both industries and the general public. Companies from various sectors have to abide by the system of GST registration. While some industries such as the consumer durables and the entertainment sector are tolerating the impact of GST, there are some like the beauty sector which stands to benefit immensely from the unified taxation system regarding the input tax credit.
However, there are several beauty products and cosmetics which have been taxed 28 percent under GST, beauty services providers stand to save a substantial amount via tax modification benefits. There are some challenges which it needs to resolve to take advantage of the current reform fully despite the beneficial impact of GST on the industry.
Under GST law, all products and services are classified under only four-4 tax slabs nationally, a shift from the earlier scenario of various tax brackets in different states. GST aims to develop “One Country One Tax One Market” by removing economic barriers between states. It will eliminate the present composite multi-layered indirect taxation policy, making it possible for a producer to build in one country and supply seamlessly across states without obstacles.
Challenges Faced by Beauty Industry:
According to industry reports, most of the companies in the Indian business industry do not have natural exposure or access to information of updated GST tax structure or its benefits in a user-friendly way. This lack of data has left many salon owners incapable of taking advantages of the tax scheme available for them. Another factor is that the contributions to their woes lie in the fact that salon owners are ending up with the increase in the tax hit from 12 percent to 28 percent on their cost of goods just with the limited understanding of the system, by not collecting GST on their sold services.
However, according to the industry experts, the salon and the beauty industry in the country can significantly benefit from the GST regime regarding overall industry growth via Input Tax Credit – a credit mechanism that allows businesses to claim tax relaxation on the goods purchased by them. As stated previously, like every taxation model, GST also has pros & cons. In the case of the salon business, GST is proving to be a benefit for them.
For instance, before GST, when 12.5 percent VAT was levied on the cost of goods and services, in India the salon business was unable to get tax input advantages from the service tax on the sale of product and services, which was 15 percent. However, salon owners can now access input tax credit under GST, which roughly counts to 2.5 percent benefit if calculated under the previous structure and 5.6 percent under the new system. This is due to the increase in tax slab from 12.5 percent VAT to 28 percent GST on different beauty products.
Moreover, unlike the previous system, wherein the service industry could never enjoy the tax input benefit from a sale of the services because of mismatch of the multiplicity of taxes, beauty and salon service providers can now enjoy tax benefits under the new unified taxation regime.
Makeup artists and GST:
Implementation of GST has affected beauty products as well as the make-up artists. This has made the make-up artist to charge more. Before GST makeup artist uses to charge 15 % service tax and now it has gone up to 18 percent. However, now the tax is being nullified as clients insist on cash dealing. With a tax on services is going up to 18 % and 28 % cosmetics, beauty salons are also struggling to maintain their customers.
The tax may not seem too high at first. For instance, a woman pays 54 for eyebrows threading which once cost 40; this will make the client think twice before going to a salon. One service can make a client feel the pinch. One cannot take off the fact that our business solely depends on the products we purchase in bulk from the shop. If the rates there increases, we will have no choice but to raise our prices too.
At a time when both the customers and the suppliers are battling the steep GST rates, online services are coming handy. The prices of goods and services are rising so does our income should also increase. Therefore, we should plan accordingly and then use the goods and services.
The merging of multiple tax structures to one intermediate structure, i.e., the GST can eliminate several challenges that taxpayers have to face in dealing with various tax authorities. Thus, overall, 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.
Afleo.com is based in Mumbai, with its expertise in GST Registrations, Intellectual Property Rights Registration, IEC Code registration, and modification, etc. We aim to help start-ups and small businesses for their legal requirements.