To lower the Goods and Services Tax (GST) rate on employment services from 18 per cent to 5 per cent, the Indian Staffing Federation (ISF) has called on the finance ministry, claiming that the proceeds shall accelerate formal job creation and enhance competitiveness in major sectors.
In a letter submitted to the minister of state for finance Pankaj Chaudhary, who is also a member of the GST Council, ISF said, “The reduction to 5 per cent GST could stimulate demand, potentially increasing the workforce to 15-20 million within a few years, formalising more jobs and aligning with national employment goals”.
As the 56th GST Council meeting approaches, a request has been received, which is anticipated to be held later this month. In December 2024, the last meeting was held. ISF, the apex body representing over 137 organised staffing firms that employ more than 1.8 million contract workers, highlighted that employment services are currently suffering from a perception of being an “additional cost,” especially in sectors where GST varies between 5-18 per cent.
Sectors include healthcare, retail, pharmaceuticals, tourism, and e-commerce industries, which have much more potential for formal employment, though higher GST on staffing services acts as a barrier to hiring through formal channels.
Lowering GST to 5% shall have a lesser financial impact since employment services contribute merely 0.15% to total GST collections, ISF claimed.
“Given the small share, it seems likely the government can afford this to promote employment without significant revenue impact,” the letter cited and mentioned that larger-scale adoption of industries can surge overall GST collections.
As per the Federation, there are many more advantages specifying that a reduction in rate shall foster formalisation and increase the social security coverage, and expand the income tax base.
A lower GST slab rate of 5% shall provide the advantage to the government and shall allow formalisation of jobs, additional job creation, and the potential of more people in the income tax ambit.
The proposal has arrived when, with the high informal employment and a growing demand for skilled manpower, India’s job market is grappling. The reduction of the GST rate can fill this gap and make the employment generation agenda of the government broader.
