Rising Costs in Fitness and Beauty Services: Why Gyms and Salons Are Increasing Prices Despite Low GST
The recent reduction of the Goods and Services Tax (GST) on personal grooming, fitness, and wellness services from 18% to 5% has not led to the anticipated price drops for consumers. Instead, many customers are experiencing price increases of 10% to 20% at salons, gyms, and yoga studios. This unexpected rise is attributed to the withdrawal of the input tax credit (ITC), which has left businesses to absorb the full tax burden on their operational expenses.
Impact of ITC Withdrawal
The input tax credit (ITC) is a mechanism that allows businesses to reclaim taxes paid on their inputs, such as raw materials and services. This system effectively reduces their overall tax liability. However, with the recent changes, many service providers, particularly in the beauty and fitness sectors, are finding that the benefits of the reduced GST rate are negated by the loss of ITC. A salon chain founder, who chose to remain anonymous, explained that many establishments raised their prices just before the new GST rates took effect. Without the ITC, maintaining pre-GST pricing would lead to significant losses.
Industry experts emphasize that the beauty sector is particularly vulnerable due to the high costs associated with equipment and supplies, which often require frequent replacement. The inability to claim ITC means that salons and similar businesses must pass on these costs to consumers, resulting in higher service prices despite the lower GST rate.
Wider Economic Ramifications
The price hikes are not limited to salons; other sectors that cannot claim ITC, such as catering and taxi leasing, are also seeing slight increases in their service charges. This trend is especially pronounced in the unorganised sector, where price monitoring is challenging due to the absence of fixed retail prices. Sandeep Ahuja, a former managing director at VLCC Health Care, noted that while the reduction in GST was a long-standing request from the beauty industry, the removal of ITC has rendered it a “zero-sum game.”
The implications extend beyond just the beauty industry. Catering services and taxi leasing companies are also hesitant to lower their prices, reflecting a broader trend of rising costs across various service sectors. The financial ministry has acknowledged the situation, stating that they will investigate complaints regarding excessive GST charges on services.
Growth Amidst Challenges
Despite the challenges posed by the GST changes, both the beauty and fitness industries continue to report robust growth. Many chains are expanding into tier-2 and tier-3 cities, driven by increasing consumer demand and aspirations. This growth indicates a resilient market, even as businesses navigate the complexities introduced by the recent tax adjustments.
Executives from salon chains in the Delhi-NCR region have confirmed that they have adjusted their pricing structures in response to the new tax landscape. While the finance ministry is prepared to address complaints regarding price increases, the unorganised sector remains difficult to regulate. As the industry evolves, stakeholders are hopeful that future policy adjustments will better support their operational needs and consumer affordability.
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