Staffing industry seeks resolution of tax woes in Budget

Wants TDS cut from 10% to 2%, and applied on commission earned, not on gross invoice value

Wants TDS to be cut from 10% to 2%, and applied on commission earned, not on gross invoice value

The staffing industry, representing companies such as Team Lease and Quess, wants finance minister Arun Jaitley to resolve the tax anomalies it faces, in the upcoming Budget.

The Indian Staffing Federation says that its demand assumes significance since post-demonetisation it is the formal sector which will grow and the staffing industry will play a crucial role in that.

The industry represents contract hiring in organised industry done through tri-partite agreements -- between the company that is hiring, the person hired and the staffing industry.

The Federation said tax deducted at source (TDS) is imposed on the gross invoices received by its members from its client companies, whereas it should be on just the commission received by the staffing companies.

While this amount is adjusted later, it takes about a year to happen, creating cash flow problems for staffing companies, says Suchita Dutta, executive director of the Federation.

At the same time, the Federation said its members topped the list of India staffing firms, as per the recent report published by Staffing Industry Analysts. The report indicated that the Indian staffing industry was estimated to be worth Rs 27,000 crore in 2015 and is forecast to grow by 12 per cent in 2016 and 10 per cent in 2017.

When asked when there is cash flow problems, how come the industry is performing so well, Dutta said the results are based on top lines and not bottom lines.

Besides, the Federation demanded that TDS be lowered to two per cent against 10 per cent imposed currently. The services industry draws 10 per cent TDS, while manpower industry is imposed two per cent tax, she said. However, contract workers have not been mentioned in the manpower industry, forcing industry players to deduct 10 per cent TDS, Dutta said.

The Federation also demanded separate regulations for the contract industry. Currently, they have to run around to seek separate licenses for their agreement with companies based on specific areas. For instance, explained Dutta, Wipro has six offices in Delhi and for each, the IT company and the staffing firm will have to seek separate licenses from the area licensing officer.

So far as the impact of demonetisation on the staffing industry is concerned, she said one thing that is clearly evident is that it is going affect the workforce in a positive way. Demonetisation will propel some desirable changes, such as bringing the informal workers into the fold of formal workforce.

Today, 94 per cent of India's workforce is in the informal sector, and its income does not even get properly accounted. In the medium to long term, employers engaging casual workers will be compelled to make payments to them only through banking or other formal modes. And this effect could become visible in sectors like real estate, construction and infrastructure, where a lot of work currently gets done in cash, Dutta said. Though formalisation is set to increase post demonetisation, the government needs to look at ways to efficiently manage formal workers, ensuring social benefits and encouraging staffing players to operate in formal sector, she said.