The implementation of the goods and services tax (GST) will usher in positive changes in the Rs 27,000-crore flexi-staffing industry, as it is expected to bring pricing parity between organised and unorganised players.
The implementation of the goods and services tax (GST) will usher in positive changes in the Rs 27,000-crore flexi-staffing industry, as it is expected to bring pricing parity between organised and unorganised players. The unorganised sector units have a pricing advantage as currently they don’t pay service tax, while GST will likely be applicable to all.Under the GST rules, scheduled to be implemented from July 1, there is an incentive for the customers to avail of the services from a tax-compliant flexi-staff firm and hence, input tax credit. Flexi-staff units supply temporary workers for the industry. “With GST, an informal sector firm has to pay 100% of the service tax and if it does, it can’t work at the terms it was earlier working with. And, if it starts charging service tax (GST), people will automatically start working with large establishements and not with informal firms they used to do earlier for pricing advantage,” said Rituparna Chakraborty, president, Indian Staffing Federation, a body for flexi-staffing.
GST would also ensure stricter compliance which would expose any malpractices and getting away with that would be difficult for informal players in the staffing industry. This would not only ensure formalisation of the informal firms, it would also help the industry, country and for the candidates, who so far might have been exploited, she added.
The GST rate for the staffing industry has been fixed by the GST Council at 18%, higher than the existing service tax rate of 15%. India is to become the third largest country to employ 2.9 million flexi-staff by 2018, moving from 2.1 million in 2015.
“This (GST) is an opportunity. Unoganised sector companies may either have to be within the tax chain or suffer loss of customer base,” Chakraborty said, adding, however, that there could be transition pains for the industry in adopting the new indirect tax regime.
Under the existing system, a service provider can raise a single invoice for catering to a customer having presence in multiple states. With GST, a provider has to raise separate invoices for catering to the same customer with business presence in many states. “That probably will be achallenge that we have to face it,” Chakraborty said.
Meanwhile, she said despite the current layoffs and negativity in certain sectors, the Indian jobs market seems to look positive in sectors like IT, start-ups, telecom and BPO.