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Govt. considers FICCI's plea to minimise impact of GST on private security industry

Aug 03, 2018

We will do whatever is possible to reduce the 18% GST levied on the industry: MoS Finance, Shiv Pratap Shukla


NEW DELHI, 3 August 2018: Finance Ministry is actively considering FICCI's recommendation to reduce the GST rate on private security agencies from the current level of 18% to minimise the impact of the levy on the industry and capitalise on its job-creation potential.


This assurance was held out today by Minister of State for Finance, Mr. Shiv Pratap Shukla, while inaugurating FICCI's Private Security Industry (PSI) Conclave-2018 on the theme, 'Job Creation & Skill Development'.


Mr. Shukla said that the government was fully conscious of the significant contribution of the private security industry in creating jobs for the poor, those that have migrated from the villages, and ex-servicemen. "We have received a FICCI representation on the issue and will do whatever is possible to reduce the 18% GST levied on the industry," he said and invited a FICCI delegation to North Block to discuss the matter.


On the occasion, Mr. Shukla released a FICCI-BDO report on 'Private Security Industry: Job Creation and Skill Development'.  The report dwells on skill development and jobs creation in PSI, policy issues concerning the sector, GST and its impact, shift from unorganised to the organised sector and integration of manpower and technology.


Senior Vice President of FICCI & Vice Chairman and MD, HSIL Ltd., Mr. Sandip Somany, said that private security agencies, which are mainly SME segments, operate on very thin margins and find it challenging to cope with the requirements of the GST compliance provisions. He said that the high GST rate of 18% had created cash-flow problems for the industry. The entire structure of charging GST was not optimal for the industry where the biggest component of costs is accounted for by wages, which were nothing but pass-through costs. GST should, therefore, be levied on the service component and not wage costs, he added.  


Chair of FICCI Committee on Private Security Industry, Mr. Rituraj Sinha, pointed out that based on the Committee's discussions with the Finance Minister and the MoS for Finance, there is a conviction that there is genuine intent on the part of the government to give GST relief to the industry. Such relief, he said, would also greatly benefit the small players who have to bear the burden of interest costs, as they have to borrow to deposit GST in advance.


Cmdr. Gautam Nanda, Associate Partner, BDO India, the knowledge partner for the conclave, gave an overview of the industry, underlining the vital role of PSI in skill development and job creation. He said that the industry was the largest employer with 8.9 million personnel with a potential to employ 3.1 million more by 2022. The estimated market size of the industry was Rs. 57,000 crore and was expected to rise to Rs. 1.5 lakh crore by 2022.


The Co-Chair of FICCI Committee on PSI & Chairman, Peregrine Guarding, Maj. Manjit Rajain, also expressed optimism of the serious inclination on the part of the government to give GST relief to PSI.


FICCI offers three options to resolve issue of GST on Private Security Industry:


FICCI's representation to the government seeks a revision of the GST rate for which it has offered the following three solutions:


Solution Option #1 - Impose GST only on the service charge component charged by the PSAs rather than the full invoice value - 18% GST on 10% of invoice value

  • Private Security sector operates on a cost-plus pricing model. Basis for per head cost is applicable Minimum Wage and statutory obligations like PF, ESIC, Leave, Bonus, Gratuity etc. Private Security agencies charge 10% or lesser as their service charge on above mentioned cost structure. Therefore, charging GST on invoice value results in taxing statutory payments. With payment cycles of 90 -180 days, this leads to significant cash flow pressure and even risk of default on statutory compliances. 
  • Charging GST on 10% of invoice value would not only enhance compliance but also ease pressure on thousands of MSME entities in private security sector.


Solution Option #2 - Consider shifting obligation to discharge the GST to the recipient of service

  • GST compliance obligation shifting from PSAs to the Service Users would significantly ease cash flow pressure and risk of default under high interest burden, in a low margin business. This shall add to ease of doing business for over 15,000 MSME operating in private security sector 
  • Above change shall also lead to timely GST compliance and eliminate possibility of leakage of revenue for the Government;


Solution Option #3 - Reduce GST on the Services (Security Services, Cash Logistics Services, Security Training, Security Consultancy) provided by PSAs from current GST current rate of 18% to 5%

  • Private Security has emerged as an essential service to support the government machinery in homeland security activities. With reduction in the GST tax rate from 18% to 5%, pressure from customers on manpower reduction is likely to ease significantly resulting in job protection for private security guards. Lower GST rate is also likely to boost volume of work orders, thereby paving way for demand expansion and resultant increase in skill development activities as well as employment generation by private security sector. 


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