Under the new GST 2.0 reforms, the government reduced tax rates on many goods to boost consumption. However, services like staffing and manpower supply continue to attract 18% GST, creating a clear gap between goods and service sectors.
Main Issue
- Goods got relief, with rates dropping to 5% or 12% in many cases.
- Staffing services — which provide formal employment through agencies — still face 18% GST, making them costlier than gig or freelance hiring, which often operates under lower or no GST incidence.
- This has made companies prefer gig workers over formal staff, as gig hiring becomes cheaper and more flexible.
Impact on Industry
- Higher Costs: MSMEs and corporates pay 10–15% more when hiring through staffing agencies.
- Shift to Gig Work: High GST on staffing pushes firms toward gig platforms or informal labour.
- Job Formalisation at Risk: Formal employment growth slows, affecting job security and social benefits.
- Working Capital Strain: Agencies face cash-flow issues due to limited Input Tax Credit usage.
Industry Demand
Staffing associations are urging the GST Council to:
- Reduce GST on staffing/manpower services from 18% to 5%, treating it as a “merit service.”
- Align tax treatment of services with goods under GST 2.0.
- Support formal hiring and discourage excessive gig dependency.
Conclusion
While GST 2.0 has simplified and boosted the goods sector, it has unintentionally penalised formal employment services. A fairer rate structure — reducing GST on staffing to 5% — could balance the market, encourage formal jobs, and support India’s long-term goal of workforce formalisation.
FAQs
1. What is the main concern of the staffing industry under GST 2.0?
Ans: The key concern is that while GST 2.0 reduced tax rates on goods, the GST rate on staffing and manpower supply services remains 18%, making formal staffing costlier compared to gig or freelance hiring.
2. Why is this seen as a tax inequity?
Ans: Because goods now enjoy lower GST rates (5% or 12%), but services — especially staffing — are taxed higher. This uneven treatment increases costs for service-based businesses and discourages formal employment.
3. How does the 18% GST rate affect companies?
Ans: Companies hiring through staffing agencies must pay 18% GST on top of wages and service charges. Many small firms cannot fully claim this as Input Tax Credit, increasing their effective cost by around 10–15%.
4. Why does gig hiring seem cheaper?
Ans: Gig workers or freelancers often work as independent contractors, where GST either doesn’t apply or applies differently (sometimes below threshold). This makes gig hiring less expensive than formal staffing.
5. What are staffing agencies demanding from the government?
Ans: They want the GST Council to reduce the GST rate on staffing/manpower services from 18% to 5%, calling it a “merit service” that promotes formal employment and social security.
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