PremiumNEW DELHI : After granting tax relief on imported Covid-related medical supplies, government has turned down requests for Goods and Service Tax (GST) relief on domestic production of Covid-vaccines and drugs saying it would be counter-productive to consumers.
The difficulty in granting GST exemption to locally produced vaccines and Covid-related drugs is that the raw materials and services used in their production will continue to attract taxes and producers will not be able to use the tax credits for the same. This could force them to recover the tax cost from the consumer, which could drive up the retail price. In 2018, the GST Council was forced to bring down GST on sanitary napkins from 12% to naught in spite of the tax credit problem, bowing to public pressure. Vaccines attract 5% GST.
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Premium Premium Finance minister Nirmala Sitharaman said in a tweet that 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 by increasing the price.
“A 5% GST rate ensures that the (vaccine) manufacturer is able to utilise input tax credit (ITC) and in case of overflow of ITC, claim refund. Hence exemption to vaccine from GST would be counterproductive without benefiting the consumer," the minister said in her tweet.
Sitharaman was responding to a letter written by West Bengal chief minister Mamata Banerjee to Prime Minister Narendra Modi asking for tax relief on covid-related medical supplies.
Sitharaman pointed out that in the case of imports, already duty relief has been granted.
The minister said a list of items for Covid relief was granted exemption from Integrated GST (IGST), customs duty and health cess. Full exemption from customs duties, including IGST, is already available to all Covid relief material imported by Indian Red Cross Society for free distribution in the country, the minister said. Full exemption from all duties has been provided to Remdesivir injections, Remdesivir raw material, medical oxygen and related gear, equipment used for the manufacture, storage and transportation of oxygen and equipment used for providing oxygen therapy. A 12% GST is applicable on Covid drugs and oxygen concentrators on domestic supplies.
Sitharaman explained in her tweet that half of the GST collected goes to states by way of state GST (SGST). “Further 41% of the Central GST (CGST) revenue is devolved to states," Sitharaman said. She explained that out of a collection of ₹100 as GST revenue, as much as ₹70.50 is states’ share.
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