The Centre can use a variety of steps to make COVID-19 vaccines and other critical supplies cheaper, including lower GST prices, zero GST on critical raw materials, allowing GST-free imports, and providing direct cash incentives to manufacturers.
For domestic supplies and industrial imports, the Goods and Services Tax is currently levied at a rate of 5% on vaccines and 12% on COVID-19 drugs and oxygen concentrators. The government has reduced the GST rate on oxygen concentrators imported for personal use from 28 percent to 12 percent and waived customs duties.
Stance of the Ministers
After West Bengal Chief Minister Mamata Banerjee wrote to Prime Minister Narendra Modi requesting an exemption from these taxes amid the pandemic’s worsening second wave, Finance Minister Nirmala Sitharaman launched a vehement defence of the GST levies on COVID-19 relief supplies. According to the Finance Minister, exempting vaccines from GST will be ineffective and would not help consumers.
If the government considers providing free vaccines to all residents, the government would be the purchaser of such vaccines. As a result, regardless of the tax rate, it is unlikely to have a significant effect on the average person’s pocketbook. According to Siddharth Surana, advisor (strategy and market transformation) at tax consultancy RSM India, “it will be more of a revenue sharing problem between the Centre and States.”
The Centre is currently offering free vaccines to those over the age of 45, while states and individuals are expected to cover the rest of the cost. Vaccines, as well as other essential medications and devices, have tax consequences.
Reduced GST on finished goods and raw materials, or zero-rating supplies, would be preferable to a complete GST exemption. Outside the scope of the GST law, said Saket Patawari, executive director (indirect tax) at advisory firm Nexdigm, the government could take steps to cut costs, including a potential special incentive scheme to refund taxes.
“GST on COVID-19 vaccines can be charged at a reduced rate of 1%. Suppliers will be eligible for GST credit, which could be asserted as a refund under a ‘inverted duty arrangement refund,’ which is commonly used by pharmaceutical companies,” Patawari explained. Alternatively, he recommended that the entire COVID-19-related supply chain be taxed at 5%.
Reduced GST rates on raw materials could help to alleviate input tax credit problems, and other options for lowering COVID-19 supply prices could be considered. Pharma and COVID equipment manufacturers may receive cash subsidies or discounts from the government.
Imports to be made easier
Imports of essential medical equipment and products can be made easier by exempting them from the Integrated GST and, if necessary, imposing end-use requirements to ensure that they are not mishandled. Given the need for importing various COVID-related material for treatment and cure of patients, to supplement current availability and help people tide over the current shortage, a complete exemption for such material from the Integrated GST and other procedural requirements would help facilitate the import and clearance of such material.
The government permitted duty-free and GST-free imports of COVID-19 relief material earlier this month as long as they were sent as free donations to State-government authorised agencies that would distribute the material for free on the field.
However, imports of similar supplies imported by Indian corporations or charities for free distribution in the country continue to be subject to the 12 percent Integrated GST, limiting the productive use of limited capital, according to an industry leader. Furthermore, in the absence of an explicit exemption from the Foreign Contribution Regulation Act, which allows any agency receiving foreign aid to obtain Home Ministry approval, obtaining donated foreign aid can be difficult even for State-approved organisations.
What are zero-rated supplies?
A supply is excluded under Section 2(47) of the CGST Act, 2017, if it attracts a null rating or is expressly exempted, but this is not the same as being zero-rated. Only the finished product is excluded, since inputs and input services that would have gone into the making of the goods or provision of service would have already been subject to a tax levy. Credits for inputs and input services used in the supply of the exempted output are not allowed under GST laws. This is an expense to the supplier, which is usually passed on to the customer.
The whole value chain of the supply is tax-free with zero-rating. Not only is the production tax-free, but the allowance for taxes paid on the input side can also be used to provide the output supply. Exports and exports and supplies to Special Economic Zones are subject to zero-rating under GST-related rules (SEZs). Any other group would necessitate a legal amendment.