The Companies Act, of April 2013 is a landmark legislation that created an opportunity for Indian companies to contribute to the areas of development. India is also the first country to make the incorporation of CSR activities mandatory for qualifying companies. Companies satisfying the criteria are mandatorily required to incur CSR expenditure.
However, the availability of input tax credit (ITC) on procurement of goods/services for performing Corporate Social Responsibility activity and the applicability of GST on CSR activity has been a topic of discussion. There are some who believe that CSR enhances business sustainability and profitability of the company’s operations, and therefore, should be taxed. While some believe CSR is like a donation and not a payment to an external party in furtherance of business.
Impact of CSR on Business
CSR is becoming a crucial part of any company’s long-term strategy, especially in the war on talent. An effective CSR initiative not only enriches the community but also contributes to improving the company’s culture, boosting employee engagement and helping to retain the best people. Companies with strong purpose and social responsibility practices have a positive impact on the employees as well. Most of the studies indicate that businesses with a commitment to CSR could see productivity increase twofold and turnover reductions by up to 50%.
As part of CSR initiatives, companies promote skill development through upskilling and reskilling programs to improve labour productivity and help boost economic growth. But as reported in the government data, CSR expenditure has fallen majorly in the education sector in the last two years. The exact reason behind this downfall is unknown but many organizations believe that the GST levy on skill development and education must be reconsidered.
To understand the situation better, TeamLease Education Foundation conducted a survey in an attempt to examine the sentiment of businesses toward the effect of the GST levy on CSR.
The implications of GST on CSR activities
95% of the surveyed businesses responded that the levy of GST on a good social initiative like CSR is unjustified.
In fact, 80% of all businesses believed that GST should not be levied on CSR activities and think that such a levy is detrimental to activity levels.
The Survey report has successfully captured the knowledge and awareness of businesses on GST and its impact and opinion on pre vs post-GST levy. The final segment of the report provides a set of recommendations on the exemption of GST on CSR activities, bridging the employability gap and assisting in making India the Skill Capital of the World.
The report also highlighted what the next generation of employees currently entering the workforce seek out in employers. And successfully captured the CSR impact on a business's ability to retain top talent and affect the retention rates.