The implementation of GST will have far reaches, including the cosmetics and skincare industry.
When you think about the amount of time a woman spends preening herself, it all adds up to a multi-billion dollar industry that keeps the skincare and beauty companies happy.
It is no laughing matter, especially when you consider the number of products which women use, ranging from cleansers, toners, serums and moisturisers, to foundations, powders, concealers, lipsticks, eyeshadows and blushers ... the list keeps growing as newer and better products come into being.
You might be surprised to know just how much of the average woman’s pay packet goes towards investing in the way she looks. And no wonder, since experts now tell us that first impressions go a long way towards career prospects, as well as finding a life partner.
According to British research (hairtrade.com, Bionsen), the average British woman spends £140,000 (RM755,000) on hair and cosmetics in her lifetime. A similar study in the United States (Huffington Post, YouGov) reveals that the total expenditure by women in the country is up to US$426bil (RM1.4bil) a year.
L’Oreal Malaysia says that Malaysian women allocate about RM100 a month for beauty needs. One should also take into account that women are often the ones who purchase additional products for the household. As such, the figure may not be entirely accurate and could easily be three times the given figure.
Men, it seems, are also starting to wake up to the importance of having clear skin or a full head of healthy hair. A survey by L’Oreal revealed that a whopping 56% of guys in Malaysia said that grooming helps to build a degree of self-confidence.
No wonder when the government announced the introduction of the Goods And Services Tax (GST), feathers were ruffled.
In April this year, the prices of consumer products are expected to change across the board and the beauty industry will not be spared. Cosmetics and other products for skin, hair and body care, as well as treatments such as facials, will all be subjected to the impending GST rate of 6%.
According to director of GST with the Royal Malaysian Customs Department, Datuk Subromaniam Tholasy, all products related to beauty and grooming will be subjected to the GST.
“There will be no exemptions. It will be the same across the different categories. This includes items such as electronic beauty gadgets as well,” he explains.
The only exclusion will be beauty products sold in airports, as Subromaniam says that items bought at duty-free stores will not be subjected to tax.
Not all taxes are equal
According to founder and managing director of perfume and skincare retailer Kens Apothecary, Ken Lim, the current rate of sales and service tax, or import duty, is not the same for different categories of beauty products.
“Cosmetics (except compact powders) and fragrances are currently exempt. Cleansers or soaps for hand, hair, face and body, for example, are currently imposed a 10% sales tax. There is an additional levy of 5% to 10% import duty on brushes and make-up sponges,” explains Ken.
The question that’s playing on everyone’s mind is: how will the price of beauty products be affected by GST? Will the price of your favourite skincare product skyrocket, or is there some hope that some products might even go down in price, since GST will be replacing the current sales tax which is higher?
Parfums Christian Dior Malaysia country general manager Jamie Ong points out that beauty companies have different objectives, pricing strategies and target markets. It is thus difficult to predict how the GST will affect the market.
Ong admits that the whole situation is new for him, too, but looking at the trends in some neighbouring countries, he reckons some consumers might be making extra purchases to stockpile on their stash of beauty products before the GST hits.
“To what extent? It is hard to say at this point. I foresee some customers may stock up on what they deem as ‘essentials’ such as skincare or certain make-up items,” he says, cautioning that they should be aware of the expiration date of products.
At present, many businesses pay multiple taxes, which leads to a cascading effect along the supply chain.
With the GST, businesses can benefit from recovering input tax.
This simply means businesses will be able to claim for the GST paid for raw materials or transportation. Only the GST levy on the final product or service (output tax) is passed on to consumers.
Ken explains that the GST will be calculated on the final retail price. This is different from the sales and service tax, which takes into account the initial price of goods.
Retailers will be required to state both the retail price and GST amount in the receipt. This way, the consumers will have a clear idea of what they’re paying for.
“Since the nett profit margin may decrease slightly, some brands might decide to increase the retail price to retain their profit margin,” Ken says.
That said, some companies have suggested the possibility of getting their overseas principals to absorb the extra 6% charge. If this happens, not every product will increase in price, despite having to pay GST.
Price increase imminent
According to Julius Lim, CEO of homegrown skincare brand Beaubelle, many countries in the region like Singapore and Thailand already have some sort of value-added tax (VAT) or GST in place for several years.
“It is high time Malaysia joins in. I don’t foresee a big negative impact on the beauty industry. Beauty products are a non-staple necessity for many people, so it shouldn’t affect the industry in any significant way,” says Julius.
Nevertheless, market talk has it that some beauty companies are already planning to increase prices in anticipation of the GST. A quick look at some consumer goods and services reveals that some of the prices may have already been “adjusted” in anticipation of April’s new tax system. While prices are usually adjusted every year to factor in the inflation rate anyway, it will be even more pronounced this year.
L’Oreal Malaysia explains that prices of key beauty essentials have been increasing about 5% to 6% each year to cover the increasing costs of raw materials and product innovations. The last year-end price adjustments were probably intended to cover the GST increase as well. In doing so, some companies are hoping to cushion the GST effect, whereby there will be minimal changes this year.
When asked about Beaubelle’s plan, however, Julius says: “We are not increasing prices at the moment. 0We will only charge the GST, which is to be paid to the government, when it comes into effect.”
A spokesperson for another beauty company clarifies that businesses are not supposed to gain from the GST. It is a consumer tax, which serves to remind consumers that they are only paying for what they spend.
Some brands are even said to be having special pre-GST sales this year, before prices are slated to change. This is hardly surprising, knowing the “kiasu” mentality of Malaysian shoppers who prefer to buy when there’s a sale.
Will beauty companies witness a shift in consumer spending after the GST is implemented?
Some women may choose to shop less, or be more selective with their purchases. Whether consumers will downgrade from luxury brands to mass brands instead, Ong says it won’t be an issue. He thinks every man or woman has a select brand which he or she is loyal to.
“I believe this depends very much on individual preference and it’s hard to say how consumers trends will change. Skincare is a very personal regimen so it can be unpredictable,” Ong says.
Come what may, people are not about to give up their grooming habits overnight just because the cost of living has gone up slightly.
Maybe you could cut spending on other stuff such as sugary treats so that you can still get your cosmetics fix. That could turn out to be a good thing...