Impact of GST on Training Partners in Skill Development and Vocational Education and Training (VET): A Perspective

Training partners are one of the key stakeholders in the skill development value chain and they are quite concerned about how they will be impacted by Goods and Services Tax (GST). In this guest article Mr. Vinod G G, CFO, LabourNet Services India Pvt. Ltd. raises general concerns as it reflects on some areas where we can try to mitigate the complexities and wait for ambiguities to clear with the rolling out of GST. Hopefully, the evolving framework of GST and the tax structure works favourably for the fledgling training industry in India that is becoming the backbone of Skill India mission.

Need for simplified compliance mechanism

With the current system of GST registrations, there will be multiple registrations taking place across training centers in many states, though training companies will be supplying training material & content and recruit the resource from their Head Office or Registered Office. This may lead to chaos and compliance cost would go up in addition to increase in man-hours for capturing required data on purchases and sales at Centres.

Hence, there is a need for clarity as to what the Centre will take care of compliance in terms of remitting tax and filing returns. Under centralised remittance, Head Office will avail Input Tax Credit centrally and will avoid branch remittance. This will also bring in clarity not to bring in further working capital at the Centres and thereby, reduce the requirements of cash outflow at the Centres for compliance.

Nature of business in development sector and RCM

Most training companies engage small time NGOs, Trusts, Outreach Center partners wherein these partners would not have registered themselves with GST. This results in additional outflow and the cost may increase despite there being availability of Input credit through Reserve Charge Mechanism (RCM). At present we cannot quantify or estimate the costs but, this may make some training programs unviable. The additional cost impact if any, for a service provider is not known if a partner/vendor opts for composition scheme and remits 1% or 2.5% as the case may be.

GST would impact our business adversely as 18% tax is too high for skill development and education that falls under the development sector, mostly impacting livelihoods at the grassroots level. This may discourage more training partners to come forward to join Skill India mission. Hence the government can reduce the slab rate from 18% to 5%, if not nil rate.

We also have an exemption with government related programs viz., National Skill Development Corporation affiliated programs; in this category training partners like LabourNet will not be able to take the input credit because of the exempted turnover, which again increases the costs for the training partner.

There is a need for clarity for the earlier exempted training for Modular Employable Skill courses approved by NCVT under DGT (Directorate of General of Training, Ministry of Skill Development and Entrepreneurship ). We are not able to find an equivalent exemption in GST. However, there is one recent exemption made on 11th June in the GST Council, 16th Meeting which talks about the exemption for Services provided to the Government under any training programme for which total expenditure is borne by the Government Apparently, it is not clear as to what this exemption is for, even though we know that the purpose of the exemption is to cover the indirect sponsorship from the Government side. If such programs are exempted from GST it’s a welcome step. We need clarity on this.

Current response to GST and way forward

We, as training partners, sent out GST related details to 800+ vendors and small partners and have received very poor response from just around 30 of them, which means our larger vendor network has not yet registered with GST. Hence, it would not be correct to say, as envisaged by the Government, that the training partner can take input credits and there is no effect because of the Reverse Charge Mechanism (RCM) as we do not know the impact on our cashflows and costs for the remittance to be made on behalf of large unregistered partners and vendors.

Some of the assumptions which the policy makers have carried out is not coming out at this point of time – it may take time, but until then companies like LabourNet have to figure out how the additional 18% has to be arranged out of the existing resources. These issues are common to all training partners as the supply chain is not still aware of GST. When there’s no awareness whoever is in the business will have to suffer. Since most of our customers are huge corporates in CSR market, we have always adhered to the rules and provisions imposed by all the compliances. The issue here is the next layer, i.e, our vendor base that is not able to comply and we will be severely hit on this account. This is something the companies of our size will definitely face.

On the long term, I am hopeful that our large partner/vendor network would register and the above may be a short term challenge and the required clarity and awareness will be brought out. I look forward to a mutually beneficial framework that mitigates the negative impact of GST on the fledgling training industry in India.