GST starts generating good vibes

Formalisation of labour force picks up as the Modi government's signature tax reform enters eighth month of rollout

The construction industry has started witnessing shift towards forma?l?isation of labo?ur force with top GST-compliant companies insisting on engaging with GST-registered contractors and vendors. To secure input tax credit, GST-compliant construction companies have to work with GST-registered contractors, sub-contractors and local vendors supplying labourers for their projects.

The labourers provided by GST-registered contractors are supposed to be paid minimum wages stipulated by the government and oth?er social security be?nefits li?ke provident fu?nd, ESI, employee compensation and gratuity on death.

According to Sudeep Sen, assistant V-P, TeamLe?a?se Services, the industry has started moving towards formalisation of workforce. “Almost 10-12 per cent of workforce across the country would have been brou?g?ht under a formal wa?ge str?u?cture. This includes lab?ourers working on projects of some of the top construction companies,” Sen said.

“There is pressure from the finance teams of these firms in order to be GST co?mplaint. Earlier, co?n?str?uction companies were not bothered where the la?b?o?urers came from or whe?ther they were paid proper wages and social security benefits. But all these reflect in their GST (goods and services tax) filings and hence the firms prefer to work with GST-registered contractors and vendors,” he added.

Due to the pre?s?sure from the compan?i?es, some of the vendors have got the?m?se?lves registered and forced to be complaint. Vendors with a futuristic view of how the industry is going to operate in the coming days too are becoming formal.

According to Rahul Sabharwal, chief operating officer of VBHC Value Homes, some of the top construction companies in the metros ha?ve been insisting on paying statutory benefits to the lab?ourers. Now more firms ha?ve joined the group, as they will have to get the transactions formalised if they have to offset the input tax credit.

In the metros, majority of the companies are now insisting on this, while the shift is happening in tier II and III cities as well.

“The onus of paying the emoluments is on the principal employer of the developer. For those who were not paying the proper emolum?ents, the compliance will increase the cost by 3-4 per ce?nt. With revenues remaining stagnant, this will directly squ?e?eze margins of the const?ruction company,” he said.

Formalisation will help la?bourers get better wages and benefits. This will also see more skilled, semi-ski?l?l?ed and unskilled people joining the workforce and ease the supply constraints in the industry. The industry would be employing around 10 million people. Increase in benefits and setting up of training institutes will also see more people picking up skills.