GST Council to discuss tax rate on Covid-19 essentials, comp to states on Friday

The GST Council is likely to discuss on Friday a reduction in the tax rate on Covid19 medicines vaccines and medical equipment as well as means to make up for the shortfall in revenues promised to statesAhead of the first meeting of the top decisionmaking body finance ministers of eight states ruled by nonBJP and likeminded parties Rajasthan Punjab Chhattisgarh Tamil Nadu Maharashtra Jharkhand Kerala and West Bengal have devised a joint strategy to press for a zero tax rate on Covid19 essentials sources saidThe Council which is headed by Union Finance Minister Nirmala Sitharaman and includes representatives of all states and Union territories is meeting for the first time in nearly eight monthsBesides discussion on tax rates the Council may also deliberate on the estimated Rs 269 lakh crore that states need to be provided as per the promise in 2017 to make good any loss in revenue they suffer because of giving up their right to levy VAT and other taxesSources said the Fitment Committee on GST rates comprising tax officers of Centre and states has also given its report to the Council listing out the pros and cons of waiver and zerorating of Covid vaccines drugs and other equipmentExempting final products from GST would deny manufacturers the option to claim the benefit of the input tax credit on raw materials and hence not much benefit accrues to consumersIn 2018 the Council following demands from various womens organisations had exempted GST on sanitary napkins from an earlier rate of 12 per cent However not much of the rate cut benefits accrued to consumers as manufacturers could not claim the benefit of taxes paid along the supply chainEarlier this week Punjab Finance Minister Manpreet Singh Badal in a letter to Sitharaman said that many goods including protective garments digital thermometers laboratory sanitisersdisinfectants and paper bed sheets which are needed to fight the Covid19 pandemic attract a basic customs duty of 20 per cent and a Goods and Services Tax GST of up to 18 per centOn top of that a 10 per cent social welfare surcharge is levied on such items As IGST is charged on taxable value which includes import duties the effective burden exceeds by another 23 per cent Badal saidIt is baffling that despite the crisis our country currently finds itself in taxes this high continue to apply on basic essentials needed to overcome this lifethreatening disease Badal said in the letterEarlier this month Sitharaman virtually ruled out exempting Covid19 vaccines medicines and oxygen concentrators from GST saying such an exemption will make the lifesaving items costlier for consumers as manufacturers will not be able to offset the taxes paid on inputsCurrently domestic supplies and commercial imports of vaccines attract a 5 per cent GST while Covid19 drugs and oxygen concentrators attract a 12 per cent levyWith regard to the issue of compensation payable to states the Centre has estimated the shortfall at Rs 269 lakh croreThe Centre expects to collect over Rs 111 lakh crore through cess on luxury demerit and sin goods which will be given to the states to compensate them for the shortfall in revenue arising out of GST implementationThe remaining Rs 158 lakh crore would have to be borrowed to meet the promised compensationAs per the agenda note shared with the states ahead of the GST council meeting on Friday the Centre has estimated that although the GST revenues may see a recovery in the current financial year there will still be a gap between the compensation need and the amount raised through cessThe 202122 Budget has assumed 17 per cent growth in GST revenues translating into monthly gross GST revenue of Rs 11 lakh croreBased on this assumption it has been estimated that for the period February 2021 to January 2022 the gap between projected revenue and the actual revenue after the release of the compensation would be around Rs 16 lakh croreIn the last fiscal the Centre had borrowed on behalf of the states and released Rs 110 lakh crore to compensate for the GST revenue shortfall Another Rs 68700 crore was collected by way of levy of cessUnder the GST law states were guaranteed to be compensated bimonthly for any loss of revenue in the first five years of the GST implementation from July 1 2017The shortfall is calculated assuming a 14 per cent annual growth in GST collections of states over the base year of 201516With states still continuing to face a shortfall in revenue as GST collections declined on account of slowing economic activity mainly due to Covid19 the GST compensation cess would continue beyond the first five years of GST implementationThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever