Staffing industry wants end to tax woes

The staffing industry, representing companies such as TeamLease and Quess, wants Finance Minister Arun Jaitley to use the Budget route to resolve the tax anomalies it faces.

The Indian Staffing Federation says their demand assumes significance as the formal sector will grow after demonetisation and the segment will play a crucial role in that.

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

The federation said tax deducted at source is imposed on gross invoices received by its members from client companies, whereas it should be on only the commission received by staffing companies.

Though this amount is adjusted later, it takes a year to do so, creating cash flow problems for the staffing companies, said Suchita Dutta, executive director of the federation.

The staffing industry is estimated to be ₹27,000 crore in 2015 and forecast to grow 12 per cent in 2016 and 10 per cent next year, according to a recent report published by Staffing Industry Analysts.

When asked how the industry was doing well despite a cash flow problem, Dutta said the results were based on revenue and not profit.

The federation also demanded that tax deducted at source be lowered to two per cent against 10 per cent currently. It also demanded separate regulations for contract industry.

Currently, they have to run around to seek separate licences for their agreements with companies based on specific areas. 

For instance, explained Dutta, Wipro has six offices in Delhi and for each office the information technology company and the staffing agency will have to seek a separate licence.

So far as impact of demonetisation on the staffing industry is concerned, she said one thing which is clearly evident is that it is going affect the workforce in the 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, whose 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 affect could be visible only in sectors like real estate, construction and infrastructure, where a lot of work used to get done through cash, Dutta said.

Though the formalisation is set to increase post-demonetisation, the government need to look at ways to efficiently manage formal workers ensuring social benefits and encourage staffing players to operate in formal sector, she added.

Image used for representational purpose only. Photograph: Reuters.