The Sindh government has introduced a conditional sales tax exemption for beauty parlors and clinics, bringing some relief to smaller businesses in the industry. The Sindh Revenue Board (SRB) has outlined the details of this exemption in their working tariff for the 2024-25 tax year.

Who Qualifies for the Exemption?

The sales tax exemption applies to specific services and businesses:

• Hair Salons: Hair cutting, dressing, dyeing, and shaving services are exempt only if they are the sole services offered. Beauty treatments, care, or related services typically offered by salons would disqualify them.

• Small Beauty Businesses: Beauty parlors, clinics, and slimming clinics with an annual turnover below Rs. 2.5 million are exempt from sales tax on all services.

Conditions to Consider:

Several conditions can disqualify businesses from the exemption:

• Location: Beauty establishments located within hotels, motels, guest houses, or clubs with taxable services are not eligible.
• Franchise Status: Franchise businesses (both franchisors and franchisees) are excluded.
• Multiple Outlets: Businesses with branches or more than one outlet within Sindh are ineligible.
• Utility Bills: If the total utility bill (electricity, gas, telephone) exceeds Rs. 25,000 in any month during a financial year, the exemption is voided.

Standard and Reduced Sales Tax Rates:

• Standard Rate: The standard sales tax rate remains at 15% for beauty businesses not meeting the exemption criteria.

• Reduced Rate (10%) : A 10% reduced rate is available under the condition that no input tax credit or adjustment is claimed.

Further Reduced Rate with Strict Conditions:

A highly reduced sales tax rate of 5% is offered, but comes with stringent requirements:

• Electronic Submission: Businesses must electronically submit their election in Form “B” (as per rule 42C of the Sindh Sales Tax on Services Rules, 2011).
• POS Machine Requirement: Installation of a Point of Sale (POS) machine for issuing electronic invoices or receipts is mandatory. These machines must be linked to the SRB web portal (e.SRB.gos.pk) for real-time monitoring.
• Electronic Invoicing Only: All tax invoices, bills of charges, or receipts must be issued electronically through the POS system. Paper or non-electronic formats are not permitted.
• No Input Tax Credit/Adjustment: No input tax credit or adjustment is allowed under this reduced rate.

Implications for Beauty Businesses:

This conditional exemption and tiered tax rates aim to provide relief to smaller businesses while ensuring larger establishments contribute their fair share to provincial revenue. The SRB aims to increase transparency and reduce tax evasion by enforcing electronic invoicing and POS machine installations.

Compliance is Key:

Beauty businesses operating in Sindh should carefully review the new regulations to determine their eligibility for exemptions and reduced rates. Embracing the SRB’s focus on digital compliance measures will benefit them in the long run and align with the broader trend of modernizing tax administration.