GST Council forms GoM for tax slabs of Covid essentials
In a series of decisions on Friday, the Goods and Service Tax (GST) Council formed a group of ministers (GoM) to decide on waiving off taxes on Covid-19 essentials such as vaccines, expanded the list of relief items imported without duties to also include drugs for mucormycosis, eased compliance burdens for small businesses, and decided to borrow ₹1.58 lakh crore to compensate states for their revenue shortfall in the 2021-22 financial year.
After a nine-hour long meeting of the federal body, Union finance minister Nirmala Sitharaman said that a “protracted discussion” on the issue of tax exemption on individual items for Covid-19 led to the decision that a GoM should be set up, which will submit its report “within 10 days ... on or before 8th June, so that if there are any further reductions which need to be done, will be done”.
She said the GoM will be constituted on Saturday.
Several states have been demanding GST waivers for Covid essentials. While vaccines and cotton masks attract 5% GST, most of the other items, such as testing kits, drugs, medical oxygen, oxygen concentrators and ventilators, attract 12% GST. Alcohol-based sanitiser, hand wash, disinfectants and thermometers are under the 18% tax slab.
The GST Council is chaired by Sitharaman and finance ministers of states are its members.
Sitharaman said the council on Friday decided to exempt integrated GST (IGST) on import of Amphotericin-B, a medicine to treat mucormycosis, a fungal infection that has emerged as a Covid-19 complication.
She said the scope of the IGST waiver on Covid-19 relief materials such as medical oxygen, oxygen concentrators, oxygen storage equipment, diagnostic kits and vaccines have also been extended to imports “on payment basis” for donating to the government or recognised relief agencies. These exemptions will be valid up to August 31.
So far, IGST exemption was applicable only if these items were imported “free of cost” for free distribution. All these goods are already exempted from basic customs duty.
“I think, one of the biggest decisions of today is on the reduction of compliance burden of small taxpayers and also some medium-size taxpayers. Late fee amnesty related matters have also been decided upon... for reducing the late fee payable in these cases,” she said adding that about 89% taxpayers will benefit.
While late fees have been rationalised for the future to provide long-term relief to small taxpayers, return filing has also been simplified, she said.
She said the issue of compensation cess was also discussed in the meeting and the same mechanism of FY-21 was adopted for 2021-22. “So the rough estimate is that the Centre will have to borrow about ₹1.58 lakh crore and pass it on to states on a back-to-back arrangement like we did last year,” she said. HT wrote about it on May 27.
The GST law assures states get a 14% increase in their annual revenue for five years from July 1, 2017, and also guarantee them that their revenue shortfall, if any, would be made good through the compensation cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and tobacco products.
In the previous financial year, due to the first wave, the GST revenue fell short by about ₹2.35 lakh crore. The Centre last year gave two borrowing options facilitated by a special window of the Reserve Bank of India (RBI) to states. First was to borrow the GST shortfall of ₹1.10 lakh crore and repay both principal and interest from the compensation cess. In the second option, only the principal amount would be paid from the compensation cess. After some resistance by 10 Opposition-ruled states, the first option was eventually accepted.
On extension of compensation cess beyond June 2022, Sitharaman said the matter will be discussed at a special section of the council.
MS Mani, senior director at consultancy firm Deloitte India said: “While the amnesty scheme would significantly benefit small businesses, there is a need to extend the same to other businesses who may not have fulfilled their obligations due to the pandemic.”
“Exemption of any product is a complex exercise involving the entire value chain and it is essential that the interests of all stakeholders are taken into consideration.”