Centre can cut GST rates on COVID-19 vaccines, critical supplies, say experts

A health worker prepares a dose of the Covishield vaccine at a health centre in Hyderabad on Tuesday, May 11, 2021.   | Photo Credit: NAGARA GOPAL

An array of measures including reduction in GST rates, zero GST rate on critical raw materials, permitting GST-free imports as well as direct cash incentives to producers, can be used by the Centre to make COVID-19 vaccines and other critical supplies cheaper, tax experts have suggested.

At present, Goods and Services Tax is levied at the rate of 5% on vaccines and 12% on COVID-19 drugs and oxygen concentrators for domestic supplies and commercial imports. For oxygen concentrators imported for personal use, the government has reduced GST rate from 28% to 12% and waived customs duties.

Minister’s stance

Finance Minister Nirmala Sitharaman on Sunday launched a staunch defence of the GST levies on COVID-19 relief supplies after West Bengal Chief Minister Mamata Banerjee wrote to Prime Minister Narendra Modi mooting an exemption from these taxes amid the pandemic’s escalating second wave. The Finance Minister had said that exemption to vaccine from GST would be counterproductive without benefiting the consumer.

“If the government is exploring free vaccination to all the citizens, then the consumer of such vaccine will be the government. Thus, no matter at what rate it is taxed, it may not directly impact the pocket of common man. It would be more of a revenue sharing issue between the Centre and States,” said Siddharth Surana, adviser (strategy and business transformation) at tax consultancy RSM India.

Under the present policy, the Centre is providing free vaccines to those above 45 years, while States and individuals have been asked to foot the bill for the rest. Tax implications matter not just for vaccines, but also other critical drugs and equipment.

Better option

A taxation expert, on condition of anonymity, said reducing the GST on final products as well as raw materials, or zero-rating supplies, would be a better option than an outright GST exemption.

Saket Patawari, executive director (indirect tax) at advisory firm Nexdigm, said the government could take measures to slash costs, including a possible special incentive scheme to refund taxes, outside the ambit of the GST law.

“A concessional GST rate of 1% can be levied for COVID-19 vaccines. Suppliers would be allowed GST credit benefit, which could be claimed as refund under an ‘inverted duty structure refund’, typically claimed by pharmaceutical companies,” Mr. Patawari said. Alternatively, the entire COVID-19-related supply chains could be taxed at 5%, he suggested.

The tax expert quoted earlier said that reducing GST rates of raw materials could minimise the input tax credit issues and other options could also be considered to cut prices of COVID-19 supplies. “The government can direct cash subsidies or incentives to pharma and COVID equipment suppliers,” he pointed out.

Easing of imports

Experts have also called for easing of imports of critical medical equipment and materials by exempting them from Integrated GST, by putting end-use conditions in certain cases, if needed, to ensure they are not misused.

“Given the need for importing various COVID-related material for treatment and cure of patients, to augment current availability and to help people tide over the current shortage, a complete exemption to such material from the Integrated GST and other procedural requirements will help facilitate the import and clearance of such material,” Bipin Sapra, partner at consulting major EY, told The Hindu.

Earlier this month, the government had allowed duty-free and GST-free imports of COVID-19 relief material, provided they are sent as free donations to State-government approved entities who will distribute the material on the ground for free.

But imports of similar supplies purchased by Indian corporates or charities for free distribution in the country, still attract 12% Integrated GST, impacting the efficient use of scarce resources, an industry leader said. Moreover, accessing donated foreign aid may be difficult even for State-approved entities in the absence of an explicit exemption from the Foreign Contribution Regulation Act, which requires any entity getting foreign aid to get a Home Ministry approval.

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Printable version | Jun 22, 2021 8:08:46 AM |

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