To provide some relief to common man amid the second wave of coronavirus pandemic, finance minister Nirmala Sitharaman on Saturday announced tax relief on various Covid-19 medicines and equipment. However, the Goods and Services Tax (GST) on Covid-19 vaccine to remain same at 5 per cent.
Explaining the rationale behind this, Sitharaman said, “5 per cent GST on Covid vaccines will stay. The Centre will buy the 75% vaccine as announced and will pay its GST too. But 70% of income from GST will be shared with the states." The decision was taken in the 44th GST Council meet on Saturday.
During the last GST council meet on May, the states urged the Centre to rationalise the tax rates on various Covid essential items and equipment. Finance minister constituted a Group of Ministers (GoM) headed by Meghalaya chief minister Conrad Sangma to examine possible waivers of GST levies essential supplies. The GoM submitted its report on June 7. It has suggested rate cut on some COVID essentials to 5 per cent and no change in tax rate on vaccines, according to reports.
“These rate reductions or exemptions shall remain in force till September 30, 2021," Union ministry of finance said in a statement.
Last week, Prime Minister Narendra Modi announced that the Union government will provide the free coronavirus vaccine to states for inoculation of all above the age of 18 from June 21. The Centre has decided to buy 75 per cent of jabs from vaccine makers, including 25 per cent of the state quota, and give it for free to state governments. He also asserted that Covid vaccine supply would be increased significantly in the country in coming days.
“The GST council’s decision to not cut GST rate on vaccines is a positive one considering that it will not disturb the principal of fungibility of credit under GST and thereby not lead to cost increase arising from loss of credits. Steps such as zero rating with credits or full abatement with credit etc. could have also lead to an aberration under the GST laws. At the same time the Government has ensured that people are not burdened with the vaccine /GST cost by picking up the same, except where it may not matter viz. purchases by private parties,” said Ritesh Kanodia, Partner, Dhruva Advisors LLP.
“GST rate cut on Covid related items is a step in the right direction. It is likely that the situation will be reviewed around September and if required, the rate cut will be extended for a further period. The sharing of revenue from GST on Covid vaccine by Centre with States is also a good move and will help the States financially," Rajat Bose, partner, Shardul Amarchand Mangaldas & Co.