GST on Covid items: Amit Mitra bats for zero-rating; it is also on Sushil Modi's radar

Three days before the much-awaited meeting of the GST Council where the tax rates on Covid essentials, including vaccines, medicines and consumables, are supposed to be discussed, West Bengal Finance Minister Amit Mitra has written to the Union Finance Minister to exempt such items from GST and customs duty to make them more affordable for the common man.

“I propose that the Council in its wisdom, may agree to accept zero-rated tax for all Covid relevant materials, equipment, drugs and vaccines. This will allow manufacturers and their entire supply chain entrepreneurs to avail input tax credit. Therefore, there would be no adverse impact on prices for the consumers,” Mitra said in his letter.

CBIC manual

The Central Board of Indirect Taxes & Customs manual says that zero rating means that the entire value chain of the supply is exempt from tax. “This means that in case of zero rating, not only is the output exempt from payment of tax, there is no bar on taking/availing credit of taxes paid on the input side for making/providing the output supply. Such an approach would in true sense make the goods or services zero rated.”

Incidentally, zero rating is usually applied in export oriented products to boost exports. Governments provide certain reliefs and benefits to exporters with an eye to boosting economic growth, jobs and balance of payments. Zero rating is one such benefits under the GST regime.

It is regularly applied in SEZs.

Sushil Modi’s stance

Incidentally, BJP Rajya Sabha MP and former deputy chief minister of Bihar Sushil Modi, who is an expert of GST, has told the media that zero rating of the items is one of the options that the GST Council might explore.

“While zero-rating of domestic supplies is not unknown internationally, it is generally limited to very few products and services that are deemed essential or basic… Covid-management products are now most essential and zero-rating of them can be explored. But the law has to be amended for this,” Sushil Modi wrote in a signed article on Tuesday.

Other states

In the letter, Amit Mitra also thanked Sitharaman for convening the 43rd meeting of the GST Council on Friday.

Earlier states such as Chhattisgarh, Delhi and Punjab also urged the Centre to reduce GST on Covid essentials for relief of the common man.

“I firmly believe that the GST council can play a significant role in easing the pain of millions of our people,” read Mitra’s letter.

Bold decisions

“I look forward to fruitful deliberations and bold decisions in the ensuing GST Council meeting on Friday,” Mitra added, hoping technicalities won’t stand in the way of radical decisions.

Earlier on May 9, Bengal chief minister Mamata Banerjee wrote to Prime Minister Narendra Modi, asking for tax waivers on the import of medicines and equipment needed to fight the Covid pandemic.

Hours after Mamata’s letter reached Delhi, Sitharaman responded through a series of tweets, that a tax on vaccines and meds and oxygen concentrators is necessary to keep prices low.

“If full exemption from GST (Goods and Services Tax) were given, the domestic producers of these items would be unable to offset taxes paid on their inputs and input services and would pass these on to the end consumers by increasing their price,” she wrote in one of her 16 tweets.

“Covid-19 vaccines are being provided free of cost by the GoI to those who are 45 years of age & above and to all frontline workers. On government supplies, GST is also paid by the government. From the GST collected on vaccine, half is earned by the Centre and the other half by the states. Further, 41% of Centre’s collections also get devolved to the states,” Sitharaman wrote.