The Centre does not plan to provide an exemption from paying Goods and Services Tax (GST) for key medical items such as ventilators, sanitisers, coronavirus ( COVID-19 ) diagnostic test kits, masks and other protective equipment. Exempting GST would increase manufacturing costs without helping the consumer much, and would also incentivise import of such items from China, official sources said.
Currently, sanitisers are taxed at 18%, while ventilators and test kits are taxed at 12%. Masks attract 5% GST.
This comes after a number of demands for tax exemptions, including a tweet by Congress MP Rahul Gandhi on Monday, asking that all equipment related to the the treatment of COVID-19 patients should be GST-free. “It is wrong to collect GST on sanitizers, soaps, masks, gloves etc. from the people who are suffering from poverty,” he tweeted, using the hashtag #GSTFreeCorona.
However, government sources say that such a move could be counterproductive. Basic customs duty and health cess have been exempted on most of these items till September. As GST is a value added tax collected on net basis at each stage of the supply chain, an exemption would lead to blocked input tax credit, thus increasing the cost and compliance burden for manufacturers, without reducing the cost for consumers.
The increased manufacturing cost would discourage domestic manufacturers and incentivise imports from foreign players who would not face any input tax credit blockage, said sources, pointing to a previous experience with GST on sanitary napkins. They added that such imports would mostly be sub-standard quality goods from China.
Given that the government itself is the single largest buyer of these medical items during the pandemic — and is supplying such goods for free — it may not be desirable to distort the rate structure at the cost of the domestic supplier who is making a much-needed effort to ramp up production capacity, sources said.
