Exempt skills training from GST

Treating it on a par with school or college education and not charging GST will attract youngsters

By Author T Muralidharan   |   Published: 8th Jun 2019   1:16 am

Prime Minister Narendra Modi while launching the ‘Skill India Mission’ on July 15, 2015, said, “If China is like a manufacturing factory of the world, India should become the ‘human resource capital’ of the world. That should be our target…” He also said that India has the potential to provide a workforce of 40-50 million to the world if the capabilities of the countrymen are honed through proper training in skills.

The Centre has announced a mission of skilling over 400 million people by 2022. Assuming an investment of Rs 15,000 per person, Rs 6 lakh crore would be required for it. The demand for skilled labour is estimated to be over 128 million between 2017 and 2022 in 34 sectors across industries, according to the Skill Development and Entrepreneurship Ministry’s annual report for 2017-18. Over 18 million youth enter the workforce every year, including 6 million who exit agriculture in search of gainful employment. Clearly, skilling is a national priority.

There is a need to treat skill education on a par with school or college education for GST purposes. The rationale for concessional or nil GST for all forms of education is the same — it must be accessible and affordable to every citizen. Funding for skills training can be put into four categories based on who is paying – government, employer, student or through CSR.

1. Government-funded Skilling

The GoI has been funding skill training since 1948. But this grew rapidly after Modi’s announcement of Skill India Mission. PM Kaushal Vikas Yojana was approved on March 20, 2015, with an outlay of Rs 1,500 crore. It was expanded to Rs 12,000 crore for 2016-2020, to impart skill training to one crore people over four years to be spent through the National Skill Development Corporation (NSDC). Apart from the Skills Ministry, 17 more Ministries were given budgets for vocational training. In the last five years, heavy investments have been made, and various programmes launched. The total sector outlay for 2017-18 was pegged at Rs 17,273 crore.

But the government-funded schemes had one fatal flaw. The two key stakeholders — student and employer — who employed the trainee had no skin in the game. The schemes’ cumbersome checks and balances killed all incentives for innovation. The government cannot find the Rs 6-lakh-crore required to fund skilling. So these programmes cannot be sustained in the long-term and other funding models must be encouraged.

2. Employer-funded Skilling

Employers, especially in the Banking Financial Services and Insurance sector, skill and hire fresh graduates under their HR budgets. Since large employers hire mainly graduates, this funding model has been limited.

3. Student-paid Skilling

Millions of students in the IT industry pay for their own training. In fact, a large number of working professionals from the IT industry have to be upskilled in ‘future skills’ like Machine Learning, Artificial Intelligence and Data science in the next few years and these costs upwards of Rs 1 lakh per person. Many students will seek educational loans and, hence, this model will work only if the courses are aspirational and the salary after training is attractive to help them pay back the loans. But this is the best model in the long-term because the key beneficiary knows what is best for her/him.

4. CSR-funded Skilling

Companies must spend at least 2% of the net profit on CSR. CSR activities listed in Schedule VII of the Companies Act, 2013, include skill education and employment and livelihood support activities. The cumulative spending in the four years of FY15-18 has crossed Rs 50,000 crore, and includes Rs 34,000 crore by listed entities, according to a Crisil report. But the unspent amount is higher at Rs 60,000 crore during the same period underlining the need to improve the framework, says the report. This model has a lot of potential since the money available under CSR is bigger than government-funding

Sustainable Skill Model

In any country, school education and skilling are mostly funded by the government. This is because they are the foundation for human capital development. In a few countries like Singapore, the government even funds upskilling of working professionals. But our problem is the huge numbers to be skilled requiring Rs 6 lakh crore. How can India find this when we have to spend billions of dollars on defence, education, welfare and healthcare? So, any sustainable model for skill finding has to be a balance of all the four types of funding.

Current status of GST on skills

Government-funded programmes: Skill training undertaken by NSDC partners and implemented by NSDC under the Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) skill training programme are exempted under GST. But there are quite a few restrictions. First, only training partners of NSDC are exempted. Second, training should be approved and implemented by NSDC. Further, even if the government issues skill contracts without payment of GST, the GST on the inputs cannot be set off and hence training partners end up absorbing the GST on inputs.

Employer-funded programmes: These attract 18% GST but input credit is available. GST can also be set off against GST charged by employers to their customers.

Student-funded programmes: Educational services provided by an educational institution – pre-school to higher education – are exempt from GST provided it leads to a qualification recognised by law or an authorised vocational course. Interestingly, a few key inputs needed by educational institutions like catering, security, housekeeping, entrance test administration are also exempt from GST so that the input credit is minimised — because the input credit cannot be set off against nil GST rate on the output.

Unfortunately, training programmes, camps, yoga programmes and other events are considered a commercial activity and are liable for GST. Hence, student-paid models for skilling will be treated as training and subjected to a GST levy of 18% unless the course is approved under the National Skills Qualification Framework and is certified.

CSR-funded programmes: CSR payments are considered as grants and as such are exempt from GST. CSR grants can be given to only non-profit organisations with a three-year track record. Since skill training must result in placements in the private sector, many of the skill training partners are ‘for-profit’ entities as per the design of NSDC and hence cannot receive CSR grants directly. So many of the CSR contracts are treated as works (service) contracts attracting 18% GST. As per the works contract notification, four CSR services are specially exempted from GST, but skill training is not one of the four. Hence CSR-funded projects end up with 18% GST even though nil rate is applicable.

What’s Needed

Skills education needs huge funding and the government needs to encourage all the four modes of funding. Skill education should easily be accessible at the lowest cost. So skill training should be treated differently from commercial training and must be exempted from the 18% GST. This will help skill trainees from the lower middle-class who self-fund. CSR funding can save the 18% GST, which will enable more beneficiaries. Inputs for government-funded skilling must be exempted from GST as in the case of school education. The alternative is to reduce the GST to 5% for all the four categories of skill funding to make the compliance easy. This will also allow claim of Inputs GST Credit for government-sponsored schemes.

(The author is Chairman, TMI Group and Member, National Board of MSME, Ministry of MSME)