Double Whammy For Franchises

Hindu Business Line:

Franchising is a prevalent business model whereby the brand owner (or franchisor) provides representational rights to the buyer (or franchisee) for a consideration. This consideration is usually bifurcated into a one-time upfront franchise fee and royalty (calculated periodically on the basis of sales). The brand usage is restricted to an agreed timeframe, at the discretion of the franchisor. We have several familiar examples of this business model ranging from restaurants, schools and hospitals to fitness centres and commercial training and coaching centres.

However, little does a consumer realise that the price of any commodity or service includes two tax components — service tax and value added tax. Legislatively, these levies operate at levels — Central and State. Double taxation appears to originate from differences in the understanding of the various authorities involved.

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