GST slab mergers are likely to be postponed

| Published on 25th May 2021 | 27

Overview

The proposal to combine the 12 percent and 18 percent GST slabs into a single rate that will apply to most products is likely to be postponed, while the GST reimbursement cess on items like automobiles could be extended. The GST Council meeting on Friday is expected to address a number of concerns raised by states, including medical supply tax rates and the GST reimbursement mechanism for FY22.

The agenda for the meeting will be ready by Tuesday. While the proposal to combine the two slabs has been under discussion for many months, it will necessitate a shift in the GST structure’s design, which will have an effect on certain products.

Although a consolidated GST rate in the centre could reduce the number of slabs and lower the tax burden on products subject to the 18 percent rate, it could result in a higher tax burden on items subject to the 12 percent rate, which includes medical supplies, medical-grade oxygen, and processed food.

The GST Council, which meets every seven months, is scheduled to debate whether a borrowing scheme implemented last fiscal year to fulfil states’ GST reimbursement obligations should be continued this year.

Highlights from the last meeting

The GST Council made an in-principle decision in October 2020 to extend the GST cess beyond June 2022 in order to help pay for the borrowing made in FY21 to compensate states. The borrowing arrangement had been approved by the Council only for FY21. If this trend continues in the current fiscal year, the cess will be in place for a longer period of time.

Tax rate changes on medical supplies, which are required in the fight against covid-19, are expected to be a top priority for discussion at the GST Council meeting, according to experts. The availability of an input tax credit on medical supplies donated by employers or given to workers for personal use, as well as a rate cut on vaccinations and manufactured oxygen concentrators for personal use, are among the main concerns that many expect to be addressed.

Other Key Takeaways

States like Odisha, Punjab, and West Bengal have been bringing GST problems to the attention of the federal government. Naveen Patnaik, the chief minister of Odisha, wrote to Union finance minister Nirmala Sitharaman earlier this month, requesting a GST exemption for covid-19 vaccines as well as financial assistance for states fighting the pandemic.

Manpreet Singh Badal, Punjab’s finance minister, has expressed displeasure that significant rule changes, such as limiting input tax credits, were made by a panel of officers without debate in the Council. Badal wants to talk about how to build a “terror-free GST enforcement” climate.

Sitharaman said earlier this month that if vaccine manufacturers are granted full GST exemption, they will be unable to cover their input taxes and will pass them on to the end-user by increasing the retail price.

Experts, on the other hand, believe that a GST zero-rating, rather than an absolute exemption, would enable vaccine manufacturers to demand refunds for taxes paid on inputs. Since states have a long list of complaints, the Council’s virtual meeting on Friday could be lengthy.

GST on Vaccines: A Perplexing Problem

The majority of claims against a sales tax, such as the goods and services tax, are based on the desire to shield ordinary people from a higher tax burden. That’s why the GST controversy over Covid-19 vaccines is so intriguing. Since most vaccines are currently provided free of charge to citizens by the central government or states. Sure, a small percentage of Indians choose to get vaccinated in private hospitals, where they would be paid a 5% surcharge on the vaccine cost.

However, in general, the GST charged by the centre and states on vaccine sales will be collected as tax revenue by the centre and states. From one pocket to the next Furthermore, the sums in question aren’t important. Or they may be important but not material to either the federal or state budgets.

In India, vaccines are in short supply. States and cities are looking for new sources of supply, including imports. The GST Council would have to find a way to protect people and states without penalising vaccine manufacturers or their supply chains sooner rather than later. The council will have to meet for it though. The last meeting took place six months ago.