Lower GST on Flexi Staffing for Better Jobs
The Indian Staffing Federation (ISF) has raised a significant concern regarding the Goods and Services Tax (GST) imposed on flexi staffing services, urging the government to reduce the current rate of 18% to a more manageable 5%. This high tax rate has created an imbalance, especially as many goods have seen their tax rates lowered from 18% and 12% to just 5%. Lohit Bhatia, the ISF President, highlighted this issue, stating that it could lead to a situation where companies may reconsider their reliance on temporary staffing.
Currently, around 72 lakh workers are employed through flexi staffing firms across various sectors in India. The flexi staffing industry has generated substantial revenue, contributing approximately Rs 1.9 lakh crore while paying about Rs 34,000 crore in GST. With such a large workforce dependent on this sector, it is crucial to address the tax concerns that could otherwise hinder job creation.
Bhatia pointed out that while companies can claim input tax credit (ITC) on expenses related to third-party hiring, the current rate inversion could affect cash flows negatively. This could discourage firms from utilizing flexi staffing services, pushing them instead towards informal or gig work, which is less stable and secure. He emphasized that providing employment is a “merit service” that deserves fair treatment in tax policies.
The ISF has already brought this matter to the attention of the Union Finance Ministry and several state governments. Staffing companies play a vital role by hiring and deploying workers as flexi staff, often for fixed terms of six to twelve months. They manage salaries and social benefits, while these workers are placed with client firms under tripartite contracts.
In the context of India's labor market, tripartite or flexi work constitutes about 1.3% of the total employment. This figure is notably lower compared to countries like China, Japan, and France, where the percentages are significantly higher. The ISF projects that this share could rise to 1.6% by 2026-27, but only if the current tax issues are resolved.
Regions like Maharashtra, Karnataka, Uttar Pradesh, Tamil Nadu, and Telangana account for nearly 55% of the flexi workforce, as reported by ISF. The logistics, banking, financial services, and manufacturing sectors are leading in formal contract staffing. With a staggering 83.5% of India’s workforce engaged in informal employment, the need for a well-structured and supported flexi staffing industry is more urgent than ever.
