GST exemption for COVID-19 vaccine, drugs will make them costlier, says Nirmala Sitharaman

New Delhi: Finance Minister Nirmala Sitharaman on Sunday said GST exemption on domestic supplies and commercial imports of COVID -19 drugs, vaccines and oxygen concentrators will make these items costlier for consumers as manufacturers will not be able to offset the taxes paid on inputs.

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Currently, domestic supplies and commercial imports of vaccines attract a 5 percent Goods and Services Tax (GST), while it is 12 percent in the case of COVID drugs and oxygen concentrators.

"If full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer/citizen by increasing the price. A 5 percent GST rate ensures that the manufacturer is able to utilise ITC and in case of
overflow of ITC, claim refund. Hence exemption to vaccine from GST would be counterproductive without benefiting the consumer," Sitharaman tweeted.

She further said that if Integrated GST (IGST) Rs 100 is collected on an item, Rs 50 accrues to the Centre and the states each as Central GST and State GST respectively. Further 41 percent of the CGST revenue is devolved to states. So out of a collection of Rs 100, as much as Rs 70.50 is the share of the states.

1/ Hon. CM of West Bengal @MamataOfficial has written to the Hon @PMOIndia seeking exemption from GST/Customs duty and other duties and taxes on some items and COVID related drugs.

My response is given in the following 15 tweets.@ANI @PIB_India @PIBKolkata pic.twitter.com/YmcZVuL7XO

— Nirmala Sitharaman (@nsitharaman) May 9, 2021

From the GST collected on vaccine, half is earned by the Centre and the other half by the states. Forty-one percent of Centre's collections also get devolved to the states. So states end up receiving almost 70 percent of the total revenue collected from vaccines.

"In fact, a nominal 5 percent GST is in the interest of the domestic manufacturer of vaccine and in the interest of the citizens," Sitharaman said.

West Bengal chief minister Mamata Banerjee earlier in the day wrote to Prime Minister Narendra Modi seeking exemption from GST and customs duty any donations of oxygen concentrators, cylinders, cryogenic storage tanks and COVID related drugs from
organisations or agencies.

Sitharaman tweeted her response to Banerjee's letter, saying these items are already exempted from customs duty and health cess. Besides, Integrated GST (IGST) is also exempted on all COVID relief material imported by the Indian Red Cross for free distribution in the country.

Also IGST exemption has been given in case of goods when imported free of cost for free distribution in the country by any entity, state government, relief agency or autonomous body on the basis of a certificate issued by a state government.

"In order to augment the availability of these items, government has also provided full exemption from basic customs duty and health cess to their commercial imports," Sitharaman said.

The government has already exempted from customs duty import of a host of COVID-related relief materials, including Remdesivir injection and its APIs, Inflammatory diagnostic (markers) kits, medical grade oxygen, oxygen therapy related equipment such as oxygen
concentrators, cryogenic transport tanks, etc, and Covid vaccines.

8/ In order to augment the availability of these items, Government has also provided full exemption from basic customs duty and health cess to their commercial imports.@ANI @PIB_India @PIBKolkata

— Nirmala Sitharaman (@nsitharaman) May 9, 2021

Besides, effective 3 May, the government exempted IGST on import of COVID-relief material received as donation for free distribution in the country, a move which helped speed up customs clearances of such imports.

This exemption would be subject to nodal authorities, appointed by the state governments, authorising any entity, relief agency or statutory body, for free distribution of such relief material.

The said goods can be imported free of cost by a state government or, any entity/ relief agency/ statutory body, authorized in this regard for free distribution anywhere in India.