Monday Post

Mamta Banerjee after taking over as CM of West Bengal raised a demand that the central govt should exempt GST  on Covid vaccines and other related drugs and equipment being used for the fight against  Covid. After her, the same demand started from other various quarters that this action should be done with immediate effect.

Yesterday the Finance Minister (FM), Nirmala Sitharaman said exempting vaccines, Covid related drugs and Oxygen concentrators from Goods and Services Tax (GST) would actually increase the prices. People will wonder how this is possible that  after exemption of GST the price will go up.

The FM further said the nominal GST is always in the interest of manufacturers and consumers. Now if full exemption from GST were given, the domestic manufacturer of these items would be unable to offset taxes paid on their inputs and input services and would pass these on to the end consumers, and this will lead to a price increase.

in the case of vaccine manufacturers, a 5% GST rate ensures that they can utilise input tax credit (ITC) and in case of overflow of ITC, then they can claim refunds. This is only applicable when the manufacturers are paying GST on their end product. Hence, an exemption to the vaccine from GST would be counterproductive without benefitting the consumers.

GST rates vary from 5% on vaccines to 12% on Covid drugs and oxygen concentrators. It is applicable to domestic supplies and commercial import of these items. Mamta Banerjee has sought the exemption of GST, custom duties and other taxes on items such as Remdesivir injections, oxygen cylinders, concentrators, cryogenic storage tanks and containers donated by various organisation.

The FM further confirmed that the full exemption from all duties had been provided to remdesivir active pharmaceutical ingredient (API) and a chemical used in the manufacture of the drug with effect from 3^rd May 2021. This exemption is also available for medical oxygen, and equipment used for the manufacture, storage and transportation of oxygen. it is also applicable on equipment used for providing oxygen therapy to Covid patients, such as Oxygen concentrators, ventilators, non-ivasive oxygen masks, inflammatory diagnostic kits, reagents for testing and vaccines among others.

As er FM, the exemption is also available when items are imported free of cost for free distribution in the country by any entity such as state govt, relief agency or autonomous body on the basis of certificate issued by a state govt. In order to augment the availability of these items, the govt has also provided full exemption from basic customs duty and health cess to their commercial imports. Full exemption from customs duties, including IGST is already available to all Covid relief material imported by the Indian Red Cross for free distribution in the country.

The FM further ut this point- the much of IGST collected went to states. States end up receiving almost 70% of the total revenue from vaccines. In fact a nominal 5% GST is in the interest of domestic manufacturer of vaccine and in the interest of consumers. Covid vaccines were being provided free of cost by the Centre to citizens over 45 years of age and to all frontline workers, GST is paid by the Centre on govt supplies.

Now my main contention is that if the FM is saying that so many exemptions are already being given, why the  Chief Ministers of various states were not briefed by their revenue and other departments about this relief is available. So mqany of them wanted to score political points in saying that this exemption should be available. Secondly was Mamta Banerjee not knowing how the GST system works and its complexities before putting up the demand of exemption of GST for vaccines. It only proves one thing that they just want to say something for putting down the govt at Centre without ascertaining the facts, so that their supporters’ feel that our leader is great and is capable of even advising the govt at the centre.

Such are the political games played by our politicians.

Waiting for your views & comments.

Anil Malik

Mumbai, India

10^th May 2021.