Hair and beauty black market costs the exchequer €55m

A representative body for the industry said a 5% reduction in the tax rate until 2021 needed to create a level playing field

The cost of shutting down the hair and beauty sector for 15 weeks earlier this year represents somewhere in the remit of €580 million in lost turnover.

The hair and beauty sector is losing €500m a year to the black market, costing the exchequer an estimated €55m in lost tax revenue annually, according to a representative body for the industry. 

The Hair & Beauty Industry Confederation (HABIC) warned the government will drive more customers to the black market if it “does not do the right thing on VAT” in the upcoming budget.

An economic impact report into the industry carried out by economist Jim Power, estimated turnover of €400m for the hair and beauty black market. 

Mr Power said the VAT increase in Budget 2019, allied to a rise in the National Minimum Wage and the removal of training rates, pushed average hairdressing prices up by three per cent thus pushing more customers towards informal operators who pay no VAT.

“It goes without saying that the higher the tax burden, the more operators will be pushed into the informal segment of the industry,” he said.

Budget Demands 

Margaret O'Rourke Doherty. Picture: Brian Farrell

In its pre-budget submission, the representative body for the hair and beauty industry is asking for a five per cent reduction in the tax rate until the end of 2021 “to protect legitimate operators and create a level playing field.” 

The rate should then revert on a permanent basis to the 9 per cent which prevailed prior to the increase in Budget 2019.

Margaret Doherty, CEO of HABIC, said the Department of Finance had itself already shown the logic of making a meaningful cut to VAT.

In July 2011, when the Department cut the VAT rate for hairdressing from 13.5 per cent to 9 per cent, its own analysis showed employment in the sector rose by 25 per cent from 2011 to 2016 as a direct result, she said. 

“Then, in Budget 2019 the Government increased the VAT rate back to 13.5, an increase of 50 per cent, for a sector which makes a huge, if under-appreciated contribution to the country’s GDP”, she said.

“That increase in the VAT burden resulted in higher prices and drove even more of our clients into the black economy. Inevitably that trend will continue if the government fails to heed our calls on VAT." 

Covid Impact 

The Power report also showed the “massive shock” the sector has endured as a result of Covid-19.

The report found the cost of shutting down the sector for 15 weeks represents somewhere in the remit of €580 million in lost turnover.

The report noted the effect physical distancing rules are having on the sector, with many salons operating at 50 percent capacity.

In light of these challenges, HABIC's pre-budget submission also asks for the continuation of the wage subsidy scheme, financial support to cover commercial rates and Business Recovery Supports in line with the Small Business Recovery Plan.

The Hairdressing and Beauty services sector employs more than 25,000 people, 88.9 per cent of them female. 

The Power report estimates an additional 5,000 people are employed through the sale of hair products, cosmetics, and skincare products.