Jobs & GST: Staffing industry pushes for lower tax; pitches 5% slab to aid formal hiring

The Indian Staffing Federation (ISF) has called on the finance ministry to reduce the Goods and Services Tax (GST) rate on employment services from 18 per cent to 5 per cent, arguing that the move would significantly accelerate formal job creation and improve competitiveness in key sectors.

In a letter submitted to minister of state for finance Pankaj Chaudhary, who is also a member of the GST Council, ISF stated, “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 per ET.

The request comes ahead of the 56th GST Council meeting, expected to be held later this month. The last meeting took place in December 2024. ISF, the apex body representing over 137 organised staffing firms that collectively employ more than 1.8 million contract workers, stressed that employment services currently suffer from a perception of being an “additional cost,” particularly in sectors where GST ranges between 5-18 per cent.

These sectors include healthcare, retail, pharmaceuticals, tourism, and e-commerce industries, with a high potential for formal employment but where higher GST on staffing services acts as a deterrent to hiring through formal channels.

ISF further argued that reducing GST to 5 per cent would have minimal fiscal impact, as employment services contribute only about 0.15 per cent to total GST collections.

“Given the small share, it seems likely the government can afford this to promote employment without significant revenue impact,” the letter stated, noting that larger-scale adoption by industries could eventually drive up overall GST collections.

The Federation also highlighted broader benefits, saying a rate cut would not only promote formalisation but also increase social security coverage and expand the income tax base. It further added that a lower slab rate of 5 per cent will benefit the government as well, as it will enable further formalisation of jobs, additional job creation and the possibility of increased people in the income tax ambit.

The proposal comes at a time when India’s job market is grappling with the dual challenge of high informal employment and a growing demand for skilled manpower.

A reduced GST burden, the industry body claims, could help bridge that gap and align with the government’s broader employment generation agenda.

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