Decision On Tax Cuts On Covid Vaccines By June 8, Says Government


Finance Minister Nirmala Sitharaman chaired the 43rd GST Council meeting

GST Council Meeting 2021: Finance Minister Nirmala Sitharaman chaired the 43rd good and services tax (GST) council meeting on Friday, May 28, through video conferencing. Even though one of the main agendas of the meeting was to deliberate on GST tax on COVID-related essentials, however, no consensus was reached on the reduction of tax rates over vaccines. The decision over tax rates on COVID vaccines was referred to a group of ministers (GOM), which will be announced by June 8, said the Finance Minister while addressing a press conference after the GST Council meet.

According to sources, the GST council had announced that quarterly returns for small traders will continue and has provided relaxation of the late fee penalty for payment of GST. The Council will constitute a group of ministers to examine the Covid cess to be levied in Sikkim on the pharmaceutical and power sectors. 

According to the Ministry of Finance, the meeting was attended by Anurag Thakur, Minister of State for Finance, along with finance ministers and senior officials of the states and union territories. The meeting looked into states’ request for a cut in GST rates on essential Covid-related supplies such as medicines, vaccines, etc.
 

Compensation to states amid revenue shortfall

The GST council meet today is being held after a gap of almost eight months. The previous meeting – the 42nd GST Council meet, was conducted last year, on October 5, 2020.

At its last meeting, the Council decided to extend compensation cess for states beyond the transition period of five years, to meet the revenue gap. The central government also announced that the shortfall amount was increased to Rs 1.10 lakh crores from Rs 97,000 crores under the borrowing option.

Finance Minister Nirmala Sitharaman had announced that 21 states chose the first borrowing option for compensation of revenue shortfall due to the GST implementation. Ms Sitharaman had clarified that the central government was not denying compensation to any state, but those states which have not chosen any borrowing option will have to borrow from the market.

Under the GST law, states were guaranteed to be compensated bi-monthly to make up for the revenue shortfall in the first five years of the GST implementation, starting from July 1, 2017. This was done as states lost autonomy over indirect taxes due to rollout of the GST system. 

The revenue shortfall is calculated assuming a 14 per cent annual growth in GST collections of states, over the base year of 2015-16. Amid the second wave of the pandemic and the induced economic slowdown, GST collections declined, resulting in states still continuing to face a shortfall in revenue.

Tax cut on COVID-related essentials

Recently, Punjab finance minister Manpreet Singh Badal in a letter to Finance Minister Nirmala Sitharaman had asked the central government to consider the GST exemption on essential Covid-related related items such as face masks hand sanitisers, gloves, temperature scanners, PPE Kits, oximeters, ventilators and other such essential medical supplies. He specified that these items attract a basic customs duty of 20 per cent and a GST of up to 18 per cent.

Additionally, a 10 per cent social welfare surcharge is levied on such items. As IGST is charged on the taxable value, which includes import duties, the effective burden exceeds by another 2-3 per cent, added the Punjab finance minister.

Earlier this month, the Finance Minister virtually ruled out exempting COVID-19 medicines, vaccines, as well as oxygen concentrators from the ambit of GST, stating that such an exemption will make the lifesaving essentials costlier for consumers as manufacturers will not be able to offset the taxes paid on inputs.

Presently, domestic supplies and commercial imports of vaccines attract a five per cent GST, while COVID-19 drugs and oxygen concentrators attract a 12 per cent levy. With regard to the issue of compensation payable to states, the central government has estimated the shortfall at Rs 2.69 lakh crore.

Also Read: GST Council To Discuss Tax Rate On COVID Essentials, Compensation To States

Meanwhile, budget 2021-22 assumed a 17 per cent growth in GST revenues, translating into monthly gross GST revenue of Rs 1.1 lakh crore. The GST Council is the statutory body that takes decisions regarding the issues of threshold limit for the applicability of the tax, and the limit for dual control between the central government and the states.



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