Skill Ministry seeks lower GST for manpower supply

The Skill Development and Entrepreneurship Ministry (MoSD) has sought the status of ‘merit services’ for manpower services for applicability of GST.  Acceptance of such a proposal is likely to lower the GST rate to 5 per cent as against existing rate of 18 per cent.

Meanwhile, the Indian Staffing Federation (ISF), an industry body representing the manpower outsourcing industry, says a cut in the GST rate would lead to formalisation of the sector which, in turn, will contribute to a higher GST mop-up.

“Seeking merit service status for manpower supply is going to be part of MoSD’s budget representation, which will soon be submitted to the Finance Ministry,” a senior Government official told businessline. Manpower services for supply of workers is subject to an 18 per cent GST rate, applicable to both private and government entities. However, services provided to Panchayats or Municipalities under Articles 243G and 243W of the Indian Constitution are exempt from GST.

Although the Budget cannot make any change in the GST rate, the Finance Ministry can forward such a request to the Fitment Committee of the GST Council. Based on the suggestions given by the Committee, the Council will take a final call.

Meanwhile, ISF has called for considering employment services as ‘merit services’, with lower GST slab tax rates at 5 per cent, and has also suggested linking skilling initiatives to employment. As per a report by them, currently, 54 lakh temp staff with an average salary of ₹18,000 generates over ₹24,000 crore in GST revenue. Lowering the rate would cut this to around ₹6,700 crore, but formalisation of the sector could raise the GST revenue to around ₹50,000 crore.

“The current conversation on reducing GST rates for the employment industry can significantly aid in the formalisation of jobs within the Indian economy by alleviating the compliance burden on small businesses,” the industry body said. Many of these enterprises currently operate in the informal sector, where the costs of tax compliance can be prohibitive. Lower GST rates make formal registration more attractive, encouraging businesses to transition to the formal economy.

Suchita Dutta, Executive Director at the Indian Staffing Federation, said organised contract staffing companies play a crucial role in bridging the gap between job seekers and employers, facilitating access to benefits like Employee State Insurance (ESI) and Provident Fund (PF). “This would ensure better social security coverage for workers, reducing the burden on government resources during crises,” she said.

Further, she suggested not all employment services may need to be classified under “merit services,” but there should certainly be a categorisation based on their impact on human lives and economic growth. Just as goods are categorised into differential GST slabs, services too must reflect their importance and contribution to society. Employment services, which directly influence livelihoods and job creation, deserve particular attention.

Jobseekers who enter the job market (below 20k minimum wages) usually get pulled into informal employment due to lack of opportunity and access to the skilling ecosystem and/or education. “The staffing industry brings these jobseekers from the grassroots level to formal employment, giving them their first formal job opportunity. Which means that people with lesser access to formal education, skill find their first stepping stone in a job opportunity through a formal contract staffing company,” she said.