GST Council to Discuss the Tax Rate for the Basics of Covid, Compensation to States on Friday
New Delhi: The GST Council is expected to discuss a tax rate cut on Covid drugs, vaccines and medical devices on Friday, as well as funds to make up for the revenue shortfall promised to states.
Before the first meeting of the highest decision-making body, the finance ministers of eight states ruled by non-BJP and like-minded parties – Rajasthan, Punjab, Chhattisgarh, Tamil Nadu, Maharashtra, Jharkhand, Kerala and West Bengal – developed a common strategy to move on Push a zero tax rate on Covid Essentials.
The council, chaired by the Union’s Minister of Finance, Nirmala Sitharaman, and comprising representatives from all states and territories of the Union, is meeting for the first time in almost eight months.
In addition to discussing tax rates, the council can also deliberate on the estimated 2.69 billion rupees that states must provide under the 2017 pledge to offset any loss of revenue they may have incurred by foregoing the right to collect VAT and other costs suffer taxes.
According to sources, the GST Rate Adjustment Committee, made up of Center and State tax officials, also presented its report to the council detailing the pros and cons of doing without and zero rating Covid vaccines, drugs and other equipment are.
Exempting final products from GST would deny manufacturers the opportunity to take advantage of the pre-tax credit on raw materials and therefore not much benefit to consumers.
In 2018, at the request of various women’s organizations, the council exempted the GST for sanitary napkins from an earlier rate of 12 percent. However, not much of the interest rate cut benefits were attributed to consumers as manufacturers were unable to take advantage of taxes paid down the supply chain.
Earlier this week, Punjab Finance Minister Manpreet Singh Badal said in a letter to Sitharaman that many goods, including protective clothing, digital thermometers, laboratory disinfectants / disinfectants, and paper bed sheets, needed to fight the Covid pandemic, are attracting a basic tariff of 20 percent and a goods and services tax (GST) of up to 18 percent.
In addition, a social surcharge of 10 percent is levied on such items. Since IGST is charged on the taxable asset that includes import duties, the effective burden exceeds another 2-3 percent, Badal said.
“It is amazing that, despite the crisis, our country is currently in … taxes that remain high enough to meet the basic requirements for overcoming this life-threatening disease …” Badal said in the letter.
Earlier this month, Sitharaman practically ruled out exempting Covid vaccines, drugs, and oxygen concentrators from GST. Such an exemption would make the life-saving items more expensive for consumers, as manufacturers cannot offset taxes paid on inputs.
Currently, domestic shipments and commercial imports of vaccines are pulling a 5 percent GST, while COVID drugs and oxygen concentrators have a 12 percent tax. Regarding the issue of compensation to be paid to states, the Center has estimated the shortfall at Rs 2.69 billion.
The center assumes that the discontinuation of luxury, faulty and sinful goods will raise over 1.11 billion rupees, which will be made available to states to compensate for the loss of revenue resulting from the implementation of the GST .
The remaining Rs 1.58 lakh crore would have to be borrowed to meet the promised compensation.
According to the agenda communicated to states ahead of Friday’s GST Council meeting, the center estimated that while GST revenues will recover in the current fiscal year, there is still a gap between the compensation need and the amount is raised by cess.
The 2021-22 budget assumes a 17 percent growth in GST revenue, which is reflected in monthly gross GST revenue of Rs.1.1 billion.
Based on this assumption, it was estimated that for the period February 2021 to January 2022, the gap between projected earnings and actual earnings after the compensation was released would be around 1.6 billion rupees.
In the past fiscal year, the center took out loans on behalf of the states and released 1.10 billion rupees to make up for the GST revenue shortfall. An additional Rs 68,700 crore was raised as a donation from Cess.
Under the GST Act, states were guaranteed bimonthly compensation for any loss of revenue for the first five years of GST implementation from July 1, 2017.
The shortfall is calculated assuming an annual growth of 14 percent in states’ GST collections in the base year 2015-16.
As states continue to face a decline in sales as GST collections declined due to the slowdown in economic activity mainly due to Covid, GST compensation would continue beyond the first five years of GST implementation.