GST Council has to bring down effective prices of Covid essentials: Experts

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The entire country is looking forward to the GST Council meeting on May 28 hoping it would devise a mechanism that would reduce the price of equipment and consumables that are essential in the management of Covid.

On the agenda of the council are how to tax items such as vaccines, PPE kits, sanitisers, handwash, and different medical devices relevant to the treatment of Covid.

Taxes now

Right now, vaccines attract a rate of 5% as do cotton masks of woven fabrics.

However, alcohol-based sanitisers, handwash and gloves that are deemed as essentials for hygiene now are all taxed at 18%.

Face shields and PPE and infrared thermometers attract taxes of 18%, while medical oxygen and ventilators and other therapeutic respiration devices are taxed at 12%.

States push

The meeting on Friday is being held against the backdrop of a few states such as Delhi, Punjab, West Bengal, Chhattisgarh pushing for GST rate cuts on essential Covid items, devices and consumables.

The Centre has already exempted integrated GST on imported stuff such as ventilators, oxygen concentrators and life-saving medicines that have been obtained as relief material from donations and is meant for free distribution.

Sitharaman’s position

In the second week of February, Union finance minister Nirmala Sitharaman had tweeted that full exemption from GST might increase the price of different items.

“If full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer/citizen by increasing the price,” Sitharaman wrote on Twitter.

Her response came in reply to a letter Bengal chief minister Mamata Banerjee wrote to Prime Minister Narendra Modi for GST exemption on Covid essentials including vaccines.

Pros and cons

An expert on GST, Rajya Sabha MP, Sushil Modi told the media that a few options such as lowering the rate of tax, conditional exemption, zero rating might be considered. But the pros and cons of all of the options need to be carefully considered so that “the move actually leads to the lowering of cost for the end user.”

“Exemption from tax would not be a good idea since according to the structure of GST the manufacturer would not be able to claim input credit and the price will rise. It sounds peculiar but that’s the ground reality,” said Joydeep Sen, corporate trainer and author.

Nominal rate

Sen thinks it is feasible idea to levy a nominal rate on the products so that input credit can be claimed.

However, Sen who is a former banker, also said lowering of taxes might not by itself mean a lowering of prices.

“We have witnessed how a section of businessmen and hospitals are making money during the pandemic. Unfortunately human nature adds big ifs and buts,” he said.

MRP

Ishita Mukherjee, Professor of Economics at Calcutta University, thinks the GST Council is already culprit of not convening a meeting for the past eight months.

But now that it is has after such an undue delay, it should bring down the taxes to a minimal level that would reduce the MRP to the maximum extent possible.

“Personally, I think the government should make vaccines free. But even if it does not do it, GST on each of the items should be rationalised to such a level that the MRP (maximum retail price) drops to the minimum possible extent,” she remarked.

“In fact, one can also explore the possibility of declaring Covid essentials as essential commodities,” said Mukherjee.

Other means

However, Dr Arindam Saha, former commodity trading professional who has set up an AI-based business with European venture fund, has a more nuanced approach.

“With no end to Covid in sight, the revenue collection for the government remains suspect. April has seen the highest collection while govt spending has also surged on medical and other subsidies. Given this, it may not be prudent to compromise GST on any item,” he said.

Saha thinks that without enough tax collection, the government won’t be able to benefit target groups. “Blanket withdrawal of GST will benefit sections who can afford to pay for the items with the present rate of taxes. So, keep GST but devise a mechanism to pass the benefits to the underprivileged,” is his prescription.