GST Council meet begins, tax rate cut on COVID essentials, compensation to states on agenda

FPJ Web DeskUpdated: Friday, May 28, 2021, 02:42 PM IST
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GST Council to meet today: Here is a list of things the Council will discuss | Photo: PTI

The GST Council in its meeting on Friday would take up for discussion proposal for cut in the tax rate on COVID medicines, vaccines and oxygen equipments as well as means to make up for the shortfall in revenues promised to states.

The 43rd GST Council meeting, chaired by Finance Minister Nirmala Sitharaman and comprising state finance ministers, is being held via video conferencing. The council is meeting for the first time in nearly eight months, PTI said.

Ahead of the first meeting of the top decision-making body, finance ministers of eight states ruled by non-BJP and its like-minded parties -- Rajasthan, Punjab, Chhattisgarh, Tamil Nadu, Maharashtra, Jharkhand, Kerala and West Bengal -- have devised a joint strategy to press for a zero tax rate on COVID essentials, sources said.

Besides discussion on tax rates, the council may also deliberate on the estimated Rs 2.69 lakh crore that states need to be provided as per the promise in 2017 to make good any loss in revenue they suffer because of giving up their right to levy VAT and other taxes.

Sources said the Fitment Committee on GST rates, comprising tax officers of centre and states, has also given its report to the council listing out the pros and cons of waiver and zero-rating of COVID vaccines, drugs and other equipment.

Exempting final product from GST would deny manufacturers from claiming the benefit of the input tax credit on raw materials and hence not much benefit accrues to consumers.

Hence, it needs to be seen whether the council decides to exempt these items from GST or cut rates.

Currently, domestic supplies and commercial imports of vaccines attract a 5 per cent goods and services tax (GST), while COVID drugs and oxygen concentrators attract a 12 per cent levy.

With regard to the issue of compensation payable to states, the centre has estimated the shortfall at Rs 2.69 lakh crore.

The centre expects to collect over Rs 1.11 lakh crore through cess on luxury, demerit and sin goods which will be given to the states to compensate them for the shortfall in revenue arising out of GST implementation.

The remaining Rs 1.58 lakh crore would have to be borrowed to meet the promised compensation.

GST meeting after a gap of 7 months

Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP, said the GST Council are meeting after a gap of seven months. This comes in the backdrop of a lot of States raising the issue of non-convening of the meeting for almost 2 quarters. With the revenue expected to decline due to the lockdown and second wave of the ongoing pandemic, the mode of compensation for States for the shortfall is expected to take centre stage. Even last time, there was a lot of confrontation between the States and the Centre on this subject and it finally got resolved. This time as well it is expected to be no different.

Further, the issue of GST on COVID vaccine and treatment equipment’s such as oxygen concentrators, are expected to be discussed further, in spite of the Government announcing various interim measures. The issue of GST on free supply of vaccines by corporates to its employees is also expected to be discussed in addition to the long pending issues of inverted duty, reduction of GST on two-wheelers, and bringing in petroleum products within the ambit of GST. However, the priority would be on compensation for the States and Covid related issues, Vijayasarathy added.

(With PTI inputs)

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