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Exempting COVID vaccines from GST will be counterproductive, lead to price increase: FM Sitharaman tells Mamata Banerjee

A 5 percent GST rate on vaccines ensures that the manufacturer is able to utilise the input tax credit (ITC) and in case of overflow of ITC, claim refund, Finance Minister Nirmala Sitharaman said, in response to a letter from West Bengal CM.

May 09, 2021 / 06:52 PM IST
Finance Minister Nirmala Sitharaman (File image)

Finance Minister Nirmala Sitharaman (File image)

Union Finance Minister Nirmala Sitharaman on May 9 responded to West Bengal Chief Minister Mamata Banerjee's letter seeking waiver of taxes on COVID-19-related drugs and medical equipment. Such a move, explained Sitharaman, would be "counterproductive" and lead to an increase in prices as the manufacturers would not be able to offset their input costs.

The Centre is not in favour of waiving the GST on vaccines as the move is expected to increase the prices of anti-COVID jabs, Sitharaman said.

"If full exemption from GST (Goods and Service Tax) 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," she tweeted.

Banerjee, in her letter addressed to Prime Minister Narendra Modi, sought a waiver on the GST levied on oxygen cylinders, along with the exemption of other medical equipment and drugs required in COVID-19 treatment from custom duties and other taxes.

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COVID-19 Vaccine

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The GST on vaccines is charged at 5 percent, and a tax rate of 12 percent is levied on domestic supplies and commercial imports of COVID-19-related drugs and equipment like oxygen concentrators.

Sitharaman, while responding to Banerjee in a series of tweets, pointed out that the Centre is not the major beneficiary of the taxes levied on the above items.

"If IGST Rs 100 is collected on an item, Rs 50 accrues to the Centre and the States each as CGST and SGST respectively. Further 41% of the CGST revenue is devolved to States. So out of a collection of Rs 100, as much as Rs 70.50 is the States’ share (sic)," she tweeted.

"If full exemption from GST 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," the finance minister added.

On vaccines, Sitharaman said that a 5 percent GST rate ensures that the manufacturer is able to utilise the input tax credit (ITC) and in case of overflow of ITC, claim refund.

"Hence exemption to vaccine from GST would be counterproductive without benefiting the consumer," she added.

In addition, Sitharaman also highlighted the free vaccination drive being run by the Centre for the priority age group - those aged above 45.

The Bengal chief minister, apart from seeking a GST waiver, also called for the exemption of customs duties on the import of COVID-19-related drugs and equipment to aid the organisations and agencies involved in providing relief work.

"A large number of organisations, individuals, and benevolent agencies have come forward to donate oxygen concentrators, cylinders, cryogenic storage tanks, tankers and tank containers, and COVID-related drugs. Donations from these organisations will greatly supplement the efforts of the state government in meeting the huge gap in demand and supply,” Banerjee wrote in the letter.

"However, many of the donors and agencies have approached the state government to consider exemption of these items from customs duty/SGST/CGST/lGST. As the rate structure falls under the purview of the central government, I would request that these items may be exempted from GST/customs duty and other such duties and taxes, to help remove supply constraints of the abovementioned life-saving drugs and equipment and contribute towards effective management of COVID pandemic," she said.

On Banerjee's demand to waive off customs and other duties on import of COVID-19-related drugs and medical equipment, the finance minister said such measures have been enacted.

With effect from May 3, 2021, full exemption from all duties has been provided to Remdesivir injections, Remdesivir API, and for a chemical for the manufacture of this drug, she said.

Medical oxygen, equipment used for the manufacture, storage and transportation of oxygen, and equipment used for providing oxygen therapy to COVID patients such as oxygen concentrators, ventilators, non-invasive oxygen masks have also been provided full exemption from duties, Sitharaman added.

"This exemption applies to all above-mentioned goods when imported free of cost for free distribution in the country by any entity, state government, relief agency or autonomous body on the basis of a certificate issued by a state government," she clarified.

Sitharaman's detailed response to Banerjee's letter comes a couple of days after Odisha CM Naveen Patnaik had written to the Centre seeking exemption of GST on purchase of COVID-19 vaccines.
Moneycontrol News
first published: May 9, 2021 06:24 pm

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